Investing in the smaller companies sector offers exposure to a group of businesses which, by comparison with larger enterprises, are driven by different dynamics. The mix of industries and economic sensitivities is different, leading to performance that is often uncorrelated with the large capitalisation market. Smaller companies may be in new growth areas where earnings can grow rapidly, they may be cyclical and offer leveraged exposure to turns in the economy, or they may occupy a particular nichewhich could make them attractive for acquisition by a larger company. In consequence, smaller company investing offers the potential for superior returns from each of these different characteristics in addition to the benefit that may be gained from performance with a low correlation to the FTSE All-Share Index.Using the Investec Asset Management stock selection process, we look to target companies which are cash generative, with robust balance sheets and strong track records. They must also appear to be undervalued, have improving operating performance and, importantly, demonstrate positive share price trends.