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Blue is the colour for Iimia

Iimia’s multi-manager team thinks small caps could be running out of steam and believes there are opportunities to be exploited among bigger companies.

The fund firm says one of the features of the bull market has been the strong performance of corporate bonds, junior mining stocks and mid- and small caps.

Blue chips have been left in their wake but Iimia chief investment officer Nick Greenwood says this environment has made it relatively easy for active managers to outperform their benchmarks.

He feels this phenomenon has been driven by increased acceptance of risk by investors, combined with plentiful availability of credit at low rates of interest.

As a result of rising interest rates, coupled with a situation where Bulgarian telecoms bonds yield less than some UK deposits, Greenwood says it is highly unlikely that investors’ appetite for risk will continue to rise.

He also says selling pressure from the life and pension institutions, which has been a significant factor behind the large-cap companies’ underperformance, seems to be reversing.

Iimia’s fund management team had been buying funds such as Edinburgh investment trust, Alliance and Monks. These trusts are all out of favour, reflecting lacklustre returns from the top end of the market. But poor sentiment has led to wide discounts, which Iimia hopes to exploit going forward.

Larking Gowen senior financial adviser Colin Trayler says: “As the growth in small cap tails off, I think that companies that can underpin their potential growth with 3 to 4 per cent dividend income will become more popular with investors. I would go along with this approach.”

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