After a torrid 2011, the sectors have generally returned more than their peers so far in 2012, and sometimes with less volatility.
The UK and European Smaller Companies sectors are the best performing in the IMA universe so far this year, returning 13.8 per cent and 13.9 per cent respectively. Last year they were among the worst, losing 17.9 per cent and 9 per cent respectively.
The North American Smaller Companies sector has returned 11.9 per cent this year after losing 1.6 per cent in 2011, and is one of the least volatile sectors across the IMA universe. It has taken on less risk than the IMA UK Gilt sector so far this year.
IMA UK Smaller Companies
FF&P Small Cap UK Equity, Threadneedle UK Smaller Companies and CF JM Finn UK Smaller Companies have fared better than their peers in this sector so far this year.
Performance of funds vs sector in 2012
Source: FE Analytics
The funds have returned 22.9, 20.4 and 19.8 per cent respectively since the start of 2012, while the sector managed 13.8 per cent. That performance has been volatile over the longer term, however.
The CF JM Finn fund has a short track record, launching in July 2010. While it initially fared far better than its peers, it took a hit last summer and has not recovered as strongly as other funds in the sector. Since inception it has returned 25.9 per cent compared with 35.9 per cent from the sector.
The FF&P fund is another risky bet; an investor who had ploughed into the fund five years ago would have lost almost 60 per cent in 2008’s market crash while the sector lost around 50 per cent. It failed to recover strongly and took another hit in last year’s market rout. It has lost 5.05 per cent over five years, while the sector has returned 9.6 per cent.
The Threadneedle fund is the most consistent of the three. Over one, three and five years it has given positive returns, and managed 133.5 per cent over three years. Run by James Thorne, the £156.2m fund has a quarter of its portfolio in industrials while the sector has 36 per cent.
European Smaller Companies
There is good news for those brave investors who took advantage of low European equity prices at the end of last year. Ignis European Smaller Companies and Henderson European Smaller Companies have returned 18.8 and 18.5 per cent respectively since the start of 2012 while the average fund in IMA European Smaller Companies has returned 14.2 per cent.
The four-year-old Ignis fund has just £11m under management and since its launch has returned more than twice as much as its peers: 7 per cent compared with 3.1 per cent from the average fund in the sector.
The £61.5m Henderson fund has a longer track record, having launched in January 1995. It has performed in line with its peers, although it tends to lose slightly more in downward-moving markets.
US Smaller Companies
Legg Mason US Smaller Companies and Janus US Venture have outperformed the rest of the sector since the year kicked off, returning 8.8 per cent and 8.3 per cent.
Performance of funds vs sector over 3-yrs
Source: FE Analytics
Both funds have fared well over the longer-term, too. Janus has returned 115.4 per cent over three years, while Legg Mason US Smaller Companies has returned 94.2 per cent. The average fund in the sector returned 93.5 per cent in the period.
The Legg Mason fund is run by Royce & Associates and has a higher weighting to basic materials and industrials than other funds in the sector. The $28.3m Janus fund is run by Will Bales and has a quarter of its holdings in TMT.