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Little Britain

UK smaller companies funds suffered badly during May, being down by 6.6 per cent on average, but there are still great opportunities in this sector where growth investing is back in vogue and where continued strong economics and a general rerating of growth companies are likely.

A smaller companies fund I particularly like is Old Mutual UK select smaller companies, run by Daniel Nickols who took over from Ashton Bradbury in January 2004 and has continued his excellent performance. Since he took over, this fund is the top performer in its sector, being up by 69 per cent in the two years to June 2006, more than 27 per cent above the average.

The fund is overweight in support services, where there are structural opportunities, and in electronics, where valuations are still cheap. It is underweight in general retail because of tough trading positions but a few retailers are now rated cheaply and he has bought holdings in Jessops and Land of Leather.

Industrials form the greater part of the portfolio, with holdings at around 43 per cent. Financials account for 16 per cent, consumer services around 13 per cent and oil and gas around 8 per cent.

The fund is widely spread, with only Chemring and Charter accounting for around 2 per cent each of the portfolio. Other holdings include Laird, Venture Production, SIG and Mouchel Parkman.

The UK smaller companies sector has outperformed the equity UK sector by substantial margins and I believe that the best stockpickers will continue to do so although bigger company funds may catch up in the short term.

Other funds I like in this sector are Axa Framlington UK smaller companies run by Roger Whiteoak, M&G smaller companies, Merrill Lynch smaller companies and Rensburg smaller companies.

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