Time to buy smaller company trusts?
Former Fleet Street City Editor Neil Collins (pictured) writes in the London Evening Standard on smaller company investments:
Had you bought a portfolio of smaller company stocks at the beginning of 2008, it would be a sad, shrunken thing today.
According to the heroic band who track these minnows, the smallest 10% (by market value) of listed shares had their worst year for half a century, with the benchmark HGSC index falling by 40%. The Aim index fell even further, by 62%.
The combination of poor liquidity, dependence on the faltering UK economy and the continuing retreat of the private investor has proved deadly, both for profits and share ratings. Yet in the last couple of months the rot has stopped, as buyers have found some irresistible value.
The problem for investors is getting enough knowledge and information about these neglected companies, since analysts can't generate enough trade from them to eat. The solution is to use someone else's expertise and spread the risk with a specialist investment trust.
The dash to liquidity has damaged these too, so they are standing on big discounts to their asset values. In other words, today's buyer is getting a discount to already depressed prices.
The big beast in the small field is Mercantile, which has a so-so record, is on a 10% discount and yields 6.2% at 576p, but a better bet could be Schroder UK Mid & Small Cap, which has a better record, and stands on a 16% discount at 128p to yield 4.1%.
The experts at Winterfloods also like Aberforth Smaller Companies, whose experienced managers have recently taken the plunge and borrowed to gear up the trust for the first time in many years.
On a 19% discount, it yields 5.6% at 337p, and the newly-enlarged Standard Life UK Smaller Companies is on a 14% discount at 95p, but the yield is only 1.8%.
If you do buy any of these, don't fret about the day-to-day price, but lock them away. Those green shoots are frostbitten today, but the financial winter won't last forever.
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