Suits investors looking for long-term capital growth from UK smaller companies. The company is classed as 'slightly above average' in terms of risk and therefore investors will need to be prepared for some volatility over time.

The Trust invests in UK smaller companies, with the aim of maximising total returns through a dedicated stock-picking approach.

• The Trust invests in companies exclusively listed in the UK.
• Only about half of the earnings of companies in the portfolio are generated in the UK, the rest is split between the US, Europe and Asia.
• The portfolio is managed on a stock picking basis and is heavily weighted in favour of mid cap stocks where the manager sees good growth opportunities.
• This is illustrated by the current portfolio breakdown of 69% FTSE 250, 21% FTSE Small cap and 10% FTSE AIM (Source: Henderson Global Investors, 31/07/11).  

• Most of the investments in this portfolio are in smaller companies shares. They may be more difficult to buy and sell and their share price may fluctuate more than that of larger companies.
• If a fund is a specialist country-specific or geographic regional fund, the investment carries greater risk than a more internationally diversified portfolio. Full details of risks.

The UK equity market was up strongly in January after an abrupt reversal in risk appetite. With the market reassured by European banks’ healthy uptake of the European Central Bank’s (ECB’s) first longer-term refinancing operation in December, equities rallied, European peripheral sovereign debt yields fell sharply and the euro climbed against the US dollar. In this ‘risk-on’ environment, UK equities performed strongly, especially the more cyclically sensitive segment of the market. The FTSE All-Share Total Return Index rose 2.7%, with small and mid-caps outperforming materially, as the Hoare Govett Smaller Companies ex-Investment Companies Index rose 8.8%.

Positive contributors to portfolio performance included Spectris, a provider of electronic control and process instrumentation equipment, which rose 18.8% after it gave an upbeat trading statement and analysts raised their profit expectations for the year. International consulting engineer WSP rose 21.5% as the shares bounced back from an oversold position. Precision measurement and calibration equipment engineer Renishaw rose 38.7% after the company issued a positive outlook statement alongside in line interim results. Less helpfully, international contractor and support services group Interserve fell 9.4% as investors took profits after a strong performance in 2011.

We took a new position in Afren, the oil producer and explorer, as the company looks good value and has an exciting drilling campaign in 2012. We also added St Modwen, a property investor and developer, to the portfolio as its valuation looked extremely cheap and we felt the market was over-concerned with its debt profile. To fund these purchases we sold our position in Kalahari Minerals, after the company agreed to a takeover offer from a state-owned Chinese nuclear power company, and Advanced Medical Solutions, where strong performance from the shares had left the company looking fully valued.

Neil Hermon
January 2012