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Invesco Perpetual’s small-cap team turns to ‘higher quality’ companies for value
by Robert St George on Sep 19, 2013 at 07:41
Richard Smith (pictured) and Jonathan Brown, who run more than £650 million between open-ended and closed-ended funds at Invesco Perpetual, have turned to high-quality stocks after an evaporation of value elsewhere in the market.
‘Many of the so-called recovery stocks are now trading on relatively high multiples of partially recovered earnings and, in the absence of a more distinct economic recovery over the next six months, appear to offer little in the way of value,’ Smith and Brown commented in their latest update to investors.
‘The stocks which are of more interest to us,’ the managers revealed, ‘are the higher-quality ones which have continued to take market share through the recession. In many cases these stocks trade at discounts to the recovery stocks but will still be beneficiaries of an improving economy.’
Smith and Brown cited publisher Euromoney and Diploma, which supplies high-tech components, as opportunities they had found in this category. The former is valued at 16.9 times current earnings, and the latter 18.7.
‘These companies traded well through the recession, generating significant amounts of cash,’ the duo explained, ‘but should also deliver substantial growth in an improved economic environment.’
Set against this, though, they noted that the UK small and mid-cap sector had been through a ‘lengthy run of deteriorating profit expectations’, during which time the Numis Smaller Companies excluding Investment Companies index experienced downgrades to net earnings estimates in 16 consecutive months. Despite that, the index gained 45.9% through the period, which Smith and Brown attributed to money flowing from fixed income into equities.
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by Danielle Levy on Dec 12, 2013 at 09:03