Fund of the week: Cheap off-beat small-caps

published 14 May 2012

Small-cap investing has traditionally been seen as a risky option. However, Mike Prentis, who runs the BlackRock Smaller Companies Trust (LSE: BRSC), begs to differ. Indeed, as he tells The Daily Telegraph's Robert Miller, "data going back to 1955 show that smaller companies have outperformed their larger counterparts". His fund is certainly doing well, up 21.7% since the start of 2012.

Prentis, who has run the fund since 2002, places great emphasis on the people running the companies. In order to win his interest, "management have got to show that they can grow their business organically". One of the firms that he believes meets these criteria is high-tech manufacturer Oxford Instruments, the fund's largest holding.

A more offbeat investment is in the marketing firm BrainJuicer (LSE: BJU), which aims to uncover what consumers really desire, not just what they say they want. In terms of the big picture, Prentis expects most growth to come from outside Britain, so he favours firms that are focused on export markets: "44% of the revenues of the companies we invest in come from fast-growing overseas markets, such as Asia or America".

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The trust is also relatively cheap. It has a basic annual fee of around 0.69%. There is a performance fee levied on top of this, but this still leaves the total expense ratio at around 1%, which is "more than 50 basis points cheaper than its Morningstar UK Small-Cap Equity category median a significant cost saving", as Jackie Beard of the fund-ranking service Morningstar notes. The trust currently trades on a discount to net asset value of around 14%.

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Oxford Instruments	2.8%
Hargreaves Services	2.0%
Bellway	1.8%
Aveva Group	1.8%
Senior	1.6%
ITE Group	1.6%
Fidessa Group	1.5%
City of London	1.4%
Booker Group	1.4%
Spirax-Sarco Engineering	1.3%

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