Small Cap sector 'offers opportunities'

Many stocks in the UK Smaller Companies category could prove worth buying by private banking clients and other investors over the months to come.

This is the consensus reached by a fund manager ’round table’, brought together by the Association of Investment Companies (AIC).

Some of the experts agreed that many small firms stand to benefit from a business turnaround, after months of suffering in the credit crunch and recession.

Stock prices in these companies would then be likely to rise - financially befitting private offshore banking clients who had bought the shares up early.

However, the risk of the firms’ shares continuing to fall as the recession drags on is likely to put other investors off.

Speaking at the event, Harry Nimmo at Standard Life suggested that the markets had reached ’an inflection’ in March - since when the FTSE 100 has risen from a low of 3,500 to pass 4,500.

Gervais Williams, manager of Gartmore Growth Opporunities, also argued that ’most investors’ remain ’radically underweight in the quoted UK Small Cap sector.

Ed Beal at Dunedin added: ’While UK smaller companies have performed strongly since mid-March amid declining risk aversion, risk appetite could continue to strengthen, resulting in yet more outperformance.

’Significant value is now available in a broad range of smaller company sectors.’

Good news from the stock markets contrasts with bad recent news on the real economy.

Official government figures show that economic output in the UK declined by 1.9 per cent over the first three months of the year - the sharpest drop since 1979.

The recession is predicted by analysts to continue for the rest of the year at least. ADNFCR-2318-ID-19188340-ADNFCR