Small firms hit 150% higher investment return

Investors are receiving increasing returns from small firms as the advantages of an agile business proposition, potential for growth and increasing levels of credit availability drive equity performance.

In recent years there has been a marked change in investment strategy, evolving to focus on smaller UK companies which performed well in comparison to similar-sized firms in other countries and their larger counterparts.

The growing returns from small firm investment is illustrated by the FTSE Small Cap Index which Fundweb reported to have returned over 32 per cent in the past three years, compared to 13.5 per cent for the FTSE 100 companies.

Will Wallis, Head of Research at Numis Securities, explained: “Smaller companies generally performed, across the world, a little bit better in 2012 than the larger companies, but there were plenty of countries which were less strong. The UK was one of the strongest countries for smaller company performance, relative to large company performance.”

This upturn correlates with the performance of UK small company funds which the Association of Investment Companies (AIC), the trade body for closed-ended investment companies, reported was up 29 per cent over the past year; this figure is over double the industry average of 12 per cent.

Investment Week reported further positive news for small companies, highlighted by Paul Stevens, Small Companies Fund Manager at Octopus Investments – the fund behind bridging lender Dragonfly Property Finance – who explained that the Government’s Budget could continue this trend as it focuses on injecting liquidity into SMEs.

He said: "The market as a whole reported increases to profit expectations this month for the first time since last April, and the Treasury has continued to adopt a more positive stance towards UK smaller companies.”

Such figures provide positive news for bridging firms, the majority of which are small in size, suggesting that investor confidence is not only growing in niche businesses but in less mainstream funds, too.