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Small wonder

There has been a lot of comment recently that the days of smaller company funds’ outperformance are over because valuations are now comparable with those of bigger companies.

This is to some extent true but the choice of investments in smaller companies is very much wider and there are still a lot of companies which can continue to outperform their bigger peers.

The top-performing smaller companies fund over the past year and second over two years is the Standard Life UK smaller companies retail trust which has gone up by nearly 24 per cent over one year and nearly 65 per cent over two years to September 1.

The credit for this must go to manager Harry Nimmo, especially as he has kept the volatility of the fund slightly lower than average.

The fund is still comparatively small and provided that it does not become very big, this top-level performance should continue. What Nimmo looks for are repeatable business models that can deliver growth without the help of a recovering economy and are likely to become £1bn companies over the next few years.

Another interesting way that he chooses shares, although not unique, is to buy shares when a director of a smaller company buys shares in his own company which are already trading at a high.

He also believes quite rightly that if directors buy just before the start of the close period, this is a good indication that the company is doing well.

Nimmo’s two biggest holdings are Datamonitor, an information provider, and Pay Point, which installs its yellow boxes to pay utility and other bills over the counter in convenience stores.

This is certainly a fund which should be on every growth investor’s buy list.

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