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Baillie Gifford takes small steps in Europe

Scottish fund management group Baillie Gifford has made its institutional only European smaller companies fund available to retail investors, bringing its retail Oeic range up to 18 funds.

The fund was established in 1993 and is managed by David Walton. It aims to provide capital growth by investing in smaller companies within continental Europe and the Republic of Ireland. France and the Netherlands feature heavily in the geographical split, with other countries such as Italy making up a smaller part of the portfolio.

The fund manager will look for smaller companies across a range of industrial sectors that have high profit margins and strong balance sheets. Examples of holdings include French medical equipment firm LVL Medical Groupe, German clothing producer Hugo Boss and Swedish private hospital operator Capio.

Each company will be analysed according to its individual merits, rather than sector weightings because Baillie Gifford believes this approach will generate better fund performance.

The European market is currently ripe for stockpicking as some companies were downgraded as a result of the US-led downturn. Although the worst appears to be over, they have a long way to go before their share prices peak. This means the fund manager could pick up undervalued smaller company stocks cheaply, giving investors greater growth potential than available through larger companies.

However, investing in smaller companies has higher risks than investing in larger well-known companies and as this fund trades across Europe, the value of the investment may be negatively affected by currency movements.

According to Standard & Poor&#39s the Baillie Gifford European smaller companies fund is ranked eighth out of 13 funds based on £1,000 invested on a bid-to-bid basis with net income reinvested over three years to April 5, 2002.

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