Investors ride economic recovery via niche markets

Investors seeking to enhance their returns within the currenteconomic recovery should look to small and mid cap companies with exposure to emerging markets, according to BlackRock.

A number of companies within the industrial, technology and commodities industries offer the potential for strong returns in the current environment.

Since 1955, the HGSC Total Return Index has returned +3.3% on average per annum over the FTSE All Share Index, whilst global economic conditions are creating some significant opportunities in companies that are exposed to some of the fastest growing economies in the world. Many high quality UK and US small and mid cap stocks are significantly exposed to developing economies rather than just to their domestic market and are expanding by exploiting consumer and industrial demand in countries such as China and India.

Richard Plackett, Head of BlackRock's UK Small and Mid Cap Team, commented: "The economic outlook points to faster growth in emerging markets, which have lower levels of debt. Added to this, new industries and products always emerge first in the small and mid cap space so this sector is at the forefront of innovation and stocks are poised for growth."

High levels of government and consumer debt in the developed world contrast sharply with emerging markets. Current budget deficit levels for OECD (Organisation for Economic Cooperation and Development) countries stand at just over 8% of GDP and G7 nations are expected to see net debt of around 120% of GDP by 2013. In contrast, emerging markets have far lower debt levels on average.

Thomas Callan, Head of BlackRock's Global Opportunities Team, commented: "The US faces severe headwinds in terms of spending but companies have balance sheet flexibility to make capital investments and pursue M&A transactions. In this market there are some significant investment opportunities for bottom-up stock pickers who can identify high quality companies that have strong balance sheets, high barriers to entry, and are cash generative."