UK Smaller companies

Posted on 21 June 2011 by Douglas Chadwick

It is interesting to watch how well the UK small company and UK income funds are performing in the last six months. During this time we have watched a collapse of the Emerging market funds and now commodity funds have fallen away. European funds are in retreat with the advent of the financial problems of Portugal,Ireland,Greece and Spain weighing heavily on investor sentiment. So at the moment its the money funds or good old UK funds for safety or a return.

Why might the UK funds be performing so well and bucking the trend? This is my theory right or wrong. The value of Sterling has fallen to a very low level against most of the major world currencies. Therefore exporting has become easier and more lucrative for our manufacturers. It is true that for the last forty years all governments of what ever political persuasion have been doing their level best to eradicate manufacturing from Britain. However they have not entirely succeeded and we have some really good large businesses which are still British (think Rolls Royce and BAE) along with some foreign companies that still manufacture in Britain (think cars). Previously it may have paid these companies to out source components from abroad. But now with such weak sterling it must pay to source if available at home. Hence maybe we are seeing the rise of the smaller companies again in Britain. At least lets hope that this is the situation.

As for the UK Income funds these would appear to be successful due to quite a large number of British businesses declaring larger dividends and more of them being able to come onto the dividend ladder in the first place. All probably linked to the previous argument of the benefits of weak sterling. Fortunately at Saltydog we have been able to see this trend develop in the numbers over the last few months.Hopefully you have been taking advantage of this knowledge.