Companies: CRA    PNA   

Having joined Gartmore in 1993, Williams has over 15 years’ experience investing in smaller companies and currently heads up Gartmore’s UK Smaller Companies Team. As for the Gartmore Growth Opportunities Fund (GGO), this looks to invest primarily in UK smaller companies and AIM-listed stocks, using its borrowings to enhance returns in rising markets, while allowing it to hold cash or use options to set price-floors and preserve capital in difficult market conditions.

‘The main aim is to make shareholders more money. Small-caps have not been in fashion lately but we have found some good new ideas,’ says Williams. ‘We believe that there are many attractive opportunities in the smaller companies universe at present, particularly AIM, and that GGO is well placed to take advantage of this.’

Most trusts tend to invest fully in equities, but the freedom to hold significant sums in cash could be important. Williams is cautious about the prospects for the UK economy and the stock market as a whole: ‘The credit crunch is not easily solved and banks are likely to turn to the equity market for new funding. However, most of the stocks we hold have been overlooked because they are so small and have been undervalued.’

Compressor’s compelling valuation
‘Some of the companies we research are not just 30 to 50 per cent undervalued; in our opinion they are trading at entirely the wrong price,’ says Williams. One such company is AIM-listed Corac Group, a compressor technology pioneer that helps oil companies extract more gas from each well. ‘There is huge scope for Corac to sell its £1 million compressors,’ enthuses Williams. ‘There are tens of thousands of wells, yet the company is capitalised at only £47 million.’

The Uxbridge-based venture, chaired by Professor Gerry Musgrave, has developed ‘downhole gas compressors’ that can artificially increase pressure and therefore the amount of gas that can be recovered from an oil well. ‘Corac’s shares [now 62.5p, valuing the business at £54 million] have fluctuated but the potential for this technology is enormous and over the next three years the share price has the potential to be up to five times higher,’ Williams says.

Finance firms aiding staffer
In recruitment, Williams highlights Penna Consulting, a market leader in outplacement, which moved down to AIM from the Official List in 2006. ‘With the financial sector now dispensing with staff, demand for its services is very high. This company will be a prime beneficiary of what is going to take place over the coming years.’

Sales at Penna were £31 million in the year to March 2007, but the group made as much profit in the first six months of this year as it did in the whole of last year. According to Williams, the company’s strong share price performance in 2007, which has seen the value of the business increase to £24 million, is a direct result of rising interest in the outplacement service.

Gervais eschews the conventional wisdom that, in current tumultuous markets, it is better to buy large-cap companies: ‘I am not convinced that this is in fact the best strategy. A lot of the smaller companies have not done particularly well in recent years and so they are undervalued, making the opportunities for investment really good.’