Small Caps Poised for Major Comeback

Nish Patel, lead manager of the Global Smaller Companies Trust (GSCT), is optimistic that the prolonged bear market for smaller companies is nearing its end. He believes the current environment presents a prime opportunity to invest in this asset class, which historically has offered strong diversification benefits, particularly as the market shifts away from mega-cap tech stocks like the 'Magnificent Seven'.

Patel points to historical precedents, such as the periods following 1974 and 2000, where smaller companies experienced extended periods of outperformance. The GSCT, with its £772 million portfolio, leverages expertise from Columbia Threadneedle's investment managers who focus on identifying high-quality smaller companies across Europe, Japan, North America, and the UK. The trust's strategy involves acquiring shares when they are out of favor and trading at a discount, thereby building in a margin of safety.

Despite recent underperformance against its benchmark, GSCT has demonstrated superior returns compared to its peers over five years, delivering 38% growth. Recent portfolio additions include PriceSmart, a growing operator in Central and South America. While income is not the primary focus, GSCT has an impressive 55-year track record of annual dividend increases, paid half-yearly. Annual charges stand at 0.62%, with shares trading at a narrow 7% discount to their underlying asset value due to an active share buyback policy.