According to Schroders, small and mid caps known as smid caps represent 19 per cent of the US market, but these 1,200 companies are covered by fewer analysts than large caps. The new fund will benefit from a team of four analysts looking at these companies.
Schroders says smid caps offer greater liquidity than small caps and the companies are more mature. It will focus on companies within the $1bn to $7bn market cap range, which Schroders says has historically delivered good returns at a lower level of risk than small caps.
Schroders also like smid caps because the companies have more diverse and broader product portfolios than small caps and the management teams tend to be of higher quality. However, smid caps are still at an early enough stage in their development to grow revenues and earnings at a faster pace.
The new fund will be managed from the US by Jenny Jones, who currently manages the Schroder US smaller companies fund. She has over 20 years experience in the small and smid cap markets and joined Schroders as head of the US small cap core equity team in 2002. Prior to Schroders she was an executive director managing US equities at Morgan Stanley Investment Management.
While interest in larger US stocks has fallen because they are seen as over-valued relative to their growth potential, small and mid caps may be more attractive. However, the success of the fund depends on picking stocks which will be successful and not run out of steam early on.
According to Standard & Poors the US smaller companies fund is ranked 2nd out of nine funds in the IMA North American Smaller Companies sector since Jones took over on December 31, 2002 to April 25, 2005. These figures are based on 1,000 invested on a bid-bid basis with net income reinvested