by James Salmon

Saturday 1 October 2011

The plunging share prices of many of Britain's top businesses shows that bigger isn't necessarily better when it comes to investment. .....

...... While most investors and find managers gravitate towards giant firms in the FTSE 100, the big money has been made by those who have gambled on smaller companies.

The risks of smaller firms going bust or struggling to cope in a recession are higher. But the potential rewards - for example if they prosper and get snapped up by a larger rival are huge. ......

...... Last year funds investing in smaller companies trounced their bigger rivals, posting a 31 pc profit.

Meanwhile the FTSE 100 index grew by just 12.6pc. They have also fared comparably well in recent tough times losing 7.9 pc since the start of the year against a 9pc drop in the FTSE 100.

Despite all this just £8bn is held in UK smaller companies funds, a fraction of the £596bn held in unit trusts. Investors tend to be squeamish about them as they are perceived as being too risky. And with such a lot of firms to choose from, it is very easy for a fund manager to get it disastrously wrong.

Alan Steel, chairman of financial adviser Alan Steel Asset Management says: "If you'd bought Apple 30 years ago when it was a small start-up company you'd be very happy indeed. But for every Apple there are numerous firms that have gone bust."

"It's far too dangerous for individual investors to pick out these firms. But there are some fund managers that are very good at doing this." ......

...... Financial advisers argue there are big opportunities for those brave enough. ......

...... Alan Steel likes L&G UK Alpha, Marlborough Special Situations and Threadneedle UK Smaller Companies.

Quote courtesy of The Daily Mail
Saturday 1 October 2011