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Best of British

One of the most consistently successful stockpickers in the fund management industry is Ian McCombie, who has managed the Baillie Gifford British smaller companies fund for the past five years.

This fund has been in the top 10 over one year, three years and five years to the end of 2006 and over five years has outperformed the sector average by around 30 per cent, being up by 124 per cent.

McCombie focuses on companies with strong earnings and cash flow and normally invests for the longer term. He sometimes invests in newly floated business and recently bought Styles and Wood, providers of shop interior fitting services for retailers. He is fairly optimistic about the UK equity market because corporate profitability remains strong and this justifies the higher valuations on which smaller companies are now trading. Thirty-four per cent of the portfolio is invested in industrials, with financials making up 25 per cent and consumer services 20 per cent. Unlike many other funds, he has only small holdings – under 3 per cent, in oil and gas shares.

McCombie’s biggest holding is Bellway in the house building sector. His other top 10 holdings include IG Group and Rath-bone Brothers in the finan-cial sector and Euromoney Institutional Investor, Unswirth and DataMonitor in the media sector.

Over the longer term, the best managed UK small-cap funds have outperformed nearly all those in the UK all companies sector which invest wholly in large or mid caps. I think this trend will continue as long as we do not have a major recession but, even in that case, there are many companies in the smaller company sector which will continue to do well.

Overall, equity returns are unlikely to be as high this year as in 2006 but returns of 7-10 per cent look to be realistic and could be better still for this excellent fund.

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