The best fund managers see setbacks like the present one as a buying opportunity and there are often real bargains to be had, particularly in the smaller companies sector.Despite rising taxes and utility prices, some smaller companies in niche areas, especially those supplying the public sector where spending continues unabated, can show substantial increases in profits. In times like these, it is important to choose fund managers who have proven expertise in this area. Investors should be warned that results are unlikely to show through immediately. However, over the next year, it is likely that smaller company funds will outperform the FTSE All Share index. Some of the fund managers I like most include Giles Hargreave of Marlborough special situations, Richard Plackett of Merrill Lynch UK smaller companies, Daniel Hanbury of Investec UK smaller companies, Roger Whiteoak of Framlington UK smaller companies, Frank Manduca of UBS UK smaller companies and Stuart Sharp, who manages the two Rensburg smaller company funds. Of those managers with improving smaller company performance, Daniel Nickols, who runs Old Mutual UK select smaller companies, is a particular name to watch. Others are Harry Nimmo, of Standard Life UK smaller companies, and Simon Bailey, who manages both the Prudential and M&G smaller company funds. But a word of warning . Beware of poor performing managers in the smaller companies sector as these can suffer even bigger losses than those of bigger company funds.