Demand grows for UK smaller companies

Demand for UK smaller companies is growing as risk appetite increases, according to fund manager Templeton.

It said that small cap valuations are attractive for investors seeking growth stocks in an low- or no- growth macro environment. Franklin Templeton UK smaller companies fund co-portfolio Paul Spencer and Richard Bullas, said that the smaller companies index is trading at a discount to FTSE 250 Mid Cap index. They added: “Earnings expectations seem to have reached a realistic level a period of downgrades during the second half of 2012. This valuation discount seems excessive and the prospect to narrow over the next 12 months.”

Within the small cap universe, the managers said that they like the technology sector which has structural growth themes. “The emergence of the ‘mobile internet’ and the proliferation of mobile-enabled devices, including smart phones and tablets, and the growing need for wireless are key trends driving and sustaining the expected growth rates for companies.” They added that cap stocks can also have overseas earnings exposure: “For example, Avon Rubber PLC, a small cap group specialising in the respiratory, defence and dairy markets, produces world-leading protection and filters for the US military, homeland security and the emergency services. Their dairy division consumable liners and tubing used in automated milk production and generates approximately 85% of revenues for the US, with its rest-of-world revenues growing strong.”