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F&C’s Stanley: UK small caps are in middle of perfect storm
by Eleanor Lawrie on Jul 09, 2014 at 11:17
F&C manager Catherine Stanley (pictured) believes UK Smaller Companies are in a ‘perfect storm’ following shaky economic data and the relative outperformance of mega caps.
The Citywire A-rated manager said she is not fazed by the recent violent rotation out of small and mid caps, given their exceptional performance over the past few years. The FTSE Smaller Cap ex ITs index has risen by 144% over five years to the end of May, compared to the FTSE 100’s 16.11% rise.
‘It’s not hugely surprising, given the strong run we have seen, and there are a number of other factors. People started to get worried about recovery around the world, and smaller companies tend to be correlated to economic activity,’ she said.
At the same time, she said the sheer number of initial public offerings (IPOs) has drained money out of the UK Smaller Companies sector.
‘The level of IPOs we have seen takes up huge amounts of our time and energy. Even if you don’t take them on, it costs a lot of cash, so there is not enough for people to start topping up their holdings,’ she said.
‘All these are technical factors. The IPOs, the large cap M&A and the economy, it’s a bit of a perfect storm. I know from speaking to my peers that we are short of cash.’
Stanley has been selective over which IPOs she has backed in her F&C UK Smaller Companies fund.
‘We are really only interested in companies where we have been able to meet with management teams and that are committed in the long term to being quoted and understand what that means for them,’ she said.
‘Lots of businesses have got either very short track records or are private equity companies where we do not know if the management team are committed to being quoted.’
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