View more on these topics

Multi-manager View: David and Goliath

A major factor determining the relative performance of an equity portfolio is the proportion devoted to big and smaller companies. It is not unusual for the leviathans to outpace the minnows (or vice versa) by 10 or 20 per cent in a single year.

Deciding when to make the switch is fraught with difficulty. It requires you to take a view on two factors – are big company profits going to grow more quickly than those of smaller companies, and will the stockmarket give a higher rating for those profits?

Generally, big companies have greater global exposure while smaller companies tend to be more domestically focused. To form a view on whether large or small companies will enjoy faster profits growth requires you to predict whether sterling will be strong or weak and whether the UK economy will be stronger than other economies.

After five years of outperformance from small and mid-sized companies, it is easy to imagine they will always deliver added value. There are also plenty of persuasive intellectual justifications for us to believe that smaller is better. But cast your mind back to the late 1990s and tracker-mania when smaller companies were left trailing in the wake of blue chips. The main criticism surrounded the concept that the majority of active fund managers underperformed the FTSE 100 and prompted the question “Why pay premium fees for inferior performance?”But track-ers’ outperformance was nothing more than a reflection of outperformance being generated by blue chips against SMEs.

In UK retail funds, there is a bias towards smaller companies. Many of the most popular funds in the UK All Companies sector have less than half their assets in the FTSE 100 despite this index accounting for over 80 per cent of the FTSE All Share.

At Skandia Investment Management, we would rather not bet on macro-economic events as they are so difficult to predict. We seek to build balanced portfolios without pronounced bets to big or smaller companies. We would rather identify world-class managers who have very different investment styles – growth, value, momentum, big, small, etc, and blend them together to produce a portfolio which has similar risk characteristics to that of the market but with the potential for steady outperformance over time.

Recommended

Sipp building

The media frenzy over changes to Sipps should not be allowed to distort investment fundamentals, says Philip ScottSipp building

Consumer View: Footing the care bill

Who pays for long-term care is a delicate subject des- igned to raise the blood pressure of millions of carers and their families, who foot the bill in terms of stress, time and money to look after elderly relatives.

Turner says he is caught in a compulsion conundrum

Pension Commission chairman Adair Turner used his speech at the Trades Union Conference in Brighton last week to emphasise the arguments against pension compulsion without ruling out the controversial policy. He told the conference delegates – many of whom advocate compulsion – that the weight of public opinion is firmly against compelling people to save […]

Wake up little sushi

At the launch of Jupiter’s Japanese income fund a gaggle of hacks learnt how to make sushi. Risky business, mixing journalists and sharp knives, especially given that the first question asked by the teacher was “Is anybody drunk?” The Diary is still trying to ascertain the identity of a mystery woman who was carried off […]

Natixis video: Making smarter use of asset classes

Content supplied by Natixis Global Asset Management This video from Natixis Global Asset Management focuses on Active Share. One strategy for the smarter use of equity investments is ensuring you get what you pay for. According to the company, looking at Active Share can give you a better perspective on where performance comes from. Active […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com