Smaller Companies Outperform Big Stocks in 2015

Year to date the stand out performers have been smaller company investment trusts whether it is in the UK, Japan or Europe

Emma Wall 11 December, 2015 | 1:01PM

David has once again slain Goliath – on the stock market that is. This year, it has been the smaller companies in the UK and Japan that have outperformed their blue-chip counterparts, thanks to supportive central bank policy.

Baillie Gifford Shin Nippon (BGS) has been the top performing investment trust year to date according to Morningstar data, returning 41% since January 1. The Gold-rated Standard Life UK Smaller Companies Trust (SLS) comes in at number three – and the rest of the top 20 are peppered with closed-end funds invested in smaller-cap stocks.

According to the Association of Investment Companies (AIC) this year’s top performing sector for investment trusts is Japanese Smaller Companies, up of 21.3%, whilst European Smaller Companies takes second place up 21.1%.

UK Smaller Companies was the fourth sector, up 18%, and UK All Companies came in at number five, returning 15% to investors so far in 2015.

What Do the Analysts Say?

David Holder, Morningstar Senior Fund Analyst

Year to date the stand out performers have been broadly smaller orientated companies whether it is in the UK, Japan or Europe.

In the UK the FTSE 250 and Small Cap indices have outperformed the FTSE 100 by 9.8% and 6.9% respectively year to date with the FTSE 100 returning -2.9%. The economic environment for smaller companies remained benign throughout 2015 with low interest rates, supportive economic growth, undemanding valuations and a definitive UK election result in May.

This tail wind has helped funds such as the Mercantile Investment Trust (MRC), Standard Life UK Smaller Companies Trust, BlackRock Throgmorton Trust (THRG) and JPMorgan Mid Cap Investment Trust (JMF) to outperform. Modest levels of gearing in many cases have added to returns.

There has been a similar tale in Japan as smaller companies outperformed their larger brethren by 3.3% although the Topix still returned over 12% for UK investors. The twin offerings from Baillie Gifford and JPMorgan; Baillie Gifford Shin Nippon, Baillie Gifford Japan Trust, JPMorgan Japanese Investment Trust and JPMorgan Japan Smaller Companies Investment Trust, all performed strongly and well ahead of local indices.

Arguably the effects of Abenomics have broadened out within the Japanese economy with tentative signs of domestic demand and corporate governance improving.

Large scale stimulus in Europe has likewise assisted. Smaller companies here raced ahead of larger cap names by over 15%, although the larger companies themselves still returned some 6%.  JPMorgan European Smaller Companies Trust (JESC), Montanaro European Smaller Companies Trust (MTE) and Jupiter European Opportunities Trust (JEO) all performed strongly on a relative and absolute basis. Much like Japan the macro situation shows sign of recovery but it is likely that the path ahead will not be smooth.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Baillie Gifford Shin Nippon Ord182.80 GBX-1.61
BlackRock Throgmorton Trust plc692.00 GBX-0.86
JPMorgan European Smaller Comp Ord397.00 GBX0.00
JPMorgan Mid Cap Ord1,330.00 GBX-1.48
Jupiter European Opportunities Ord873.00 GBX0.00
Mercantile Ord261.50 GBX-0.95
Montanaro European Smaller Ord1,167.50 GBX0.21
Standard Life UK Smaller Co. Ord616.00 GBX-0.96

About Author

Emma Wall  is former Senior International Editor for Morningstar

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