Gartmore finds ‘gems' in adverse sectors
Gervais Williams, Gartmore's Head of UK Smaller Companies and manager of the Gartmore Growth Opportunities investment trust and UK & Irish Smaller Companies OEIC, says that investors have been returning to company specifics in the small-caps sector and finding the realities very different to popular perception."Increasingly, we are finding the real "gems" in what we might term the "adverse" sectors - for example, real estate and capital goods - where expectations are very low and investors have been fearful to tread," says Gervais.
After a difficult year, small cap shares have been gaining strongly in 2009. The FTSE Smaller Companies (ex Investment Companies) Index is up 26% while the FTSE AIM All Share has gained 32%.
Gervais cites the TV set-top boxes maker, Pace, as providing an example of the dramatic results a convergence of perception and reality can have.
"Pace was largely shunned by investors in 2008 because of its supposed sensitivity to consumer confidence. But full-year results in March confounded market perceptions and the expectations of many investors and they were followed by a number of earnings upgrades and a more than tripling of the company's share price."
BATM Advanced Communications, a maker of switches and routers for the Internet, is another company where misplaced perceptions have provided opportunity.
"While there have been concerns about the telecoms equipment market, BATM is very strongly positioned in its core markets and is exposed primarily to resilient market segments, such as the Carrier Ethernet. Cash generation has surpassed expectations and the company reported further improvements in its order book in May.
"Another success story is Penna Consulting, Being bracketed in the support services sector may not seem the place to be, with business expenditure across a broad range of activities having been cut. However, Penna provides outplacement services for companies reducing their workforces and is benefiting from improved trading prospects."