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 ended April marginally down. Macroeconomics were very much back in investors minds, particularly concerning the Eurozone. The Spanish economy continued to decline, with its credit rating again downgraded by Standard & Poor’s and the unemployment rate hitting nearly 25%. The Spanish stock market fell 15%. Additionally, political risks rose during the month, with the Dutch government collapsing and the real possibility of a left-leaning French President; this became reality as François Hollande has now become the first Socialist president since 1988. The FTSE All-Share Total Return Index fell 0.3%, with small and mid caps underperforming; the Hoare Govett Smaller Companies ex-Investment Companies Index fell 0.8%.

Positive contributors to performance included E2V Technologies (sensors and tubes manufacturer), which rose 19.4% as the company issued a positive trading statement and raised their full-year profit expectations. Laird (electric actuators and fluid power) rose 8.9%, as investors focused on the positive prospects for its end markets. Less helpfully, Carphone Warehouse (mobile phone retailer) fell 12.7% as brokers downgraded profit expectations following increased competition in France and weak pre-pay phone sales across Europe.

We increased our position in RPS (energy services and planning consultants) as the company appears well-placed to benefit from the growth in oil and gas exploration and a bounce-back in its Australian planning market. We also increased our position in Afren (oil and gas producer and explorer) as the company made a significant discovery in Kurdistan. To fund these purchases we sold our position in Carillion (international contractor and support services group), as we are concerned that a lack of growth in its support services division and falling margins in its contracting operations will put pressure on profit expectations.

Neil Hermon
April 2012