| Sector |
1-yr average return |
| IMA North American Smaller Companies | 33.7 |
| IMA UK Smaller Companies | 32.4 |
| IMA European Smaller Companies | 25 |
| IMA Technology & Telecoms | 24 |
| IMA Global Emerging Markets | 23.8 |
Source: Trustnet.com
The three top performing IMA sectors for the 12 months to 4 January 2011, the first working day of the year, were North American Smaller Companies, UK Smaller Companies and European Smaller Companies.
"Smaller companies are traditionally more tied into economic recovery, so this outperformance shows investors who were bullish last year won out," Graham Toone, head of investment research at AFH Wealth Management said.
The IMA Japanese Smaller Companies sector was also in the top ten, showing that economic performance and equity performance don't always go hand in hand.
"Japanese Smaller Companies can often be export-led equities, and so are more tied into the global economic recovery than its own domestic one," Toone explained.
Smaller companies' performance over the longer term hasn't been quite as strong, however, according to Financial Express.
Over three and five years, the sectors tend to be more mid-table performers, beaten by developing markets sectors such as IMA Asia Pacific ex Japan, IMA China/Greater China and IMA Global Emerging Markets.
"Smaller Companies have bucked the trend, but it would be presumptuous to expect a similar level of outperformance this year," Allenbridge's Jonathan Wallis said.
He added: "Small caps offer better prospects for growth than their large cap sisters, but we prefer to gain access to those companies via special situation funds, where you get the safety of bigger equities."
Within those sectors, the best performing funds for 2010 include the £5.1m Scottish Widows HIFML UK Smaller Companies funds, run by Trustnet Alpha Manager Harry Nimmo, the £883m Standard Life UK Smaller Companies fund, also run by Nimmo, and the £4.9m CF Amati UK Smaller Companies fund.
They all returned around 50 per cent to investors in the year, at a risk of between 13 and 15 per cent. By contrast, the UK Smaller Companies sector returned around 30 per cent at a risk of 15 per cent.
At the other end of the scale, the IMA Absolute Return and IMA Money Market sectors were the worst of the bunch, with average annual returns of 0.39 per cent and 4.38 per cent respectively.