Legg Mason US Smaller Companies fund

Andy Parsons, head of investment research at The Share Centre, explores the benefits of investing in small to medium cap US companies as well as the blue chips.

"History has taught us that whenever an economy and stock market suffer, it is generally the small and mid-cap companies that produce the biggest losses. However, the reverse is also true when the recovery starts with mid and smaller caps generally benefiting from the biggest rises.

"For many US companies the outlook for 2012 is one of caution as consumers continue to tighten the purse strings. However, investors prepared to venture away from traditional core blue chip style funds and move down the market cap scale to focus on small to mid cap companies, the potential rewards may be greater.

"For many investors, their portfolios are likely to include some US exposure, however this predominantly tends to be from funds that invest in large mega cap organisations such as Apple, Google, Microsoft and Exxon. The Legg Mason US Smaller Companies fund however, offers investors exposure to companies much further down the market cap spectrum.  We advise investors seek to invest in a blend of funds that offer exposure to the of traditional big core blue chip funds as well as and the small to mid cap arena.

"The fund is managed by wholly-owned subsidiary Royce & Associates, one of the largest and oldest small cap managers in the US, with almost 40 years' experience in the asset class.

"This fund invests in a focused portfolio of approximately 100 companies. The manager seeks to purchase companies trading at discounts of at least 30% and preferably 50% to the investment manager's estimate of their worth as businesses. Approximately 35% of company revenues are from outside the US. The fund benefits from a consistently applied investment approach together with the strength and experience of the team.

"Investors looking at this area need to be fully aware of certain risks. The underlying investments will primarily be focused on smaller companies and in this case generally those with a market cap between $500m and $5bn. However, investors should be aware that the US market is on a very different scale from that of the UK in terms of market cap. In addition, exposure to just one geographical region will in itself mean a currency risk needs to be factored in."