BWD Rensburg has established the BWD UK micro-cap growth trust to cover a niche in the market that is currently being under-used.
This unit trust that aims for growth by investing mainly in UK companies with a market cap of less than £100m, including companies listed on the Alternative investment market (Aim). It will be benchmarked against the FTSE SmallCap index (ex investment companies).
The fund will invest in between 20 and 80 stocks and its size will be limited to £20m. If the fund size was larger, the number of holdings would have to increase to enable all the money to be invested, which would not be practical for a micro-cap fund.
Stuart Sharp, who has managed the BWD UK smaller companies trust since 1992, will also run the BWD UK micro-cap growth trust. He joined BWD Rensburg in 1984 and has also worked for Aberdeen.
With the BWD UK micro-cap growth trust, Sharp will use a combination of top-down and bottom-up stockpicking to look for undervalued companies across all sectors that have strong balance sheets and growth potential.
UK smaller companies are currently cheaper than blue-chip stocks and have the potential to produce higher returns than their larger counterparts. However, smaller companies are also more volatile and micro-caps, which are one step below smaller companies, are even more volatile. This makes the fund suitable only for sophisticated investors who understand the risks they are taking as well as the rewards they could get.
According to Standard & Poor's, the UK smaller companies trust is ranked eighth out of 64 funds, based on £1,000 invested on a bid-to-bid basis with net income reinvested over three years to October 18, 2002.