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.