IBTimes UK editor-in-chief George Pitcher speaks to Edmund Shing, global equity portfolio manager at BCS Asset Management, about why big is not neccessarily beautiful when it comes to the stock market, and why you should consider investing in small-cap stocks in the new year.
Not only have small-cap stocks done considerably better than large-caps over the long-term in the UK and US, a fact well-documented in the academic financial market literature, but these pint-sized gems have over time performed particularly well at the beginning of the year, the so-called January small-cap effect
While this effect was originally identified in US small-cap stocks, UK small-caps exhibit exactly the same tendency to outperform in January, historically averaging over 4% gains in January since 1975. In fact, in the UK the first four months of the year have been the best historic period of performance, delivering an average of over 13% from January to April.
Shing recommends investing in a small-cap fund using one of a small number of investment trusts, which are listed closed-end funds which are run by a stock-picking fund manager. Funds run by small-cap specialists with long experience and a solid investment process, resulting in a strong performance track record include:
- The Miton Income Fund (LSE code: DIVI), run by small-cap veteran Gervais Williams;
- Strategic Equity Capital (LSE code: SEC), a concentrated small-cap fund run by the team at GVO Investment Management;
- The Henderson Small-Cap Fund (LSE code: HSL), run by Neil Hermon at Henderson. This trust trades at a 13% discount to net asset value.