Scouller points out that a lot of investors are just getting into the sector after huge NAV gains on the best portfolios and sharply narrowing discounts on top of this.
With this being the third consecutive year of outperformance, the analyst says that it is time to bank gains and that new investors should be looking elsewhere.
"You have seen a 40 per cent NAV correction on some of them and a 10 per cent move in the discount on top of this, so you have a 40 to 50 per cent gain in a year, which is not bad," he said.
"You have also had three good years of performance from small and mid caps and yet people are now coming in to buy these at very narrow discounts."
"You should be taking some profits at these levels."
Aberforth Smaller Companies, for example, is on a 6 per cent discount, compared with a six month range of 14 per cent to 5 per cent.
The trust has seen NAV gains of 42.7 per cent over the past year, according to FE data, and share price returns of 53.14 per cent. The Numis Smaller Companies benchmark has made 32.89 per cent over the same time.
Performance of trust vs index over 1yr
Source: FE Analytics
Throgmorton Trust is another to have had a strong run and is sitting on a 7 per cent discount compared with a range of 19 per cent to 6 per cent, according to Oriel’s figures.
It has seen NAV gains of 35.6 per cent boosted to 53.18 per cent in share price terms, thanks to its narrowing discount.
BlackRock Smaller Companies is on a 6 per cent discount, at the upper end of its six-month range of 15 per cent to 5 per cent. The trust has made 38.2 per cent in NAV terms and 49.12 per cent in share price terms.
The mid cap area of the market has been even more popular than the small cap one, having produced marginally larger gains in the year-to-date. That gap is closing, however.
Performance of indices in 2013
Source: FE Analytics
Schroder UK Mid Cap is on a 3 per cent discount compared with a six-month range of 16 per cent to 3 per cent.
The trust has made huge gains of 62.4 per cent in share price terms although a significant part of this is due to a narrowing discount: the NAV returns were 43.8 per cent.
"Many of these trusts are on their narrowest discounts for many years and offer opportunities for profit-taking," Scouller said.
Investors looking for a cheap sector to switch into may be considering emerging markets, judging by the most recent discount trends.
"A number of the emerging market and Asian specialist trusts have seen discounts widening, which is a pattern that we would expect given the weakness in these markets over recent months," he said.
Templeton Emerging Markets is on a 9 per cent discount, which compares with a six-month range of 11 per cent to 6 per cent.
The slipping discount has contributed to the trust’s 0.45 per cent loss over the past 12 months in share price terms, a worse result than the 3.22 per cent gain of the MSCI Emerging Markets index.
Performance of trust vs index over 1yr
Source: FE Analytics
Scouller notes that Baring Emerging Europe is on an 11 per cent discount, with a six-monthly range of 13 to 8 per cent.
However, he warns that it is too early for bargain hunters to be buying in to this sector.
"If you look at history, when you have got a particular market performing badly, and we saw it with Europe a few years ago, it can take a long time for sentiment to turn," he said.
"The emerging market funds, we could still see more widening of the discounts, it’s difficult to tell; the numbers have been falling off in NAV terms as well."
BlackRock Commodities Income is in the same boat, in the analyst’s view. It is on a discount of 1 per cent, having been on a 7 per cent premium earlier in the year.
Scouller says that the yield had been supporting demand for the trust, but worries over the mining and commodities sector – linked to the slowdown in emerging markets – have caused that demand to leak away over the summer.
He says that investors would be better off looking to private equity right now for value, if they have the stomach for it.
"Some of those are typically into small and mid caps as well, and that may be an area which will hold up relatively well in a correction: you are seeing good earnings growth coming through and resolutions coming through," he said.
Although they have also performed strongly over the past year, the discounts on private equity trusts have remained reasonably wide.
Earlier this week, FE Trustnet looked at the sector in more detail. Winterflood’s analysts also tipped it as one to continue to do well over the next year.
