Invesco Perpetual UK Smaller Companies Growth – switch suggestion

Andrew Crossley, manager of the Invesco Perpetual UK Smaller Companies Growth Fund, prefers to invest in smaller, economically sensitive companies. Given this focus, it is not surprising the fund struggled with the onset of the recession in 2008. However, we expected it to capitalise on any subsequent bounce as the economic picture improved and the market regained lost ground. However, during 2009’s recovery, which was led by more economically sensitive sectors, the fund underperformed its peers. Our analysis suggests the manager’s poor stock selection was the primary cause.

Its below-par performance has continued into 2010, and we can see no significant reason why the stock selection within the portfolio will improve. We therefore believe investors should consider switching to a superior alternative such as the Standard Life Investments (SLI) UK Smaller Companies Fund.

The SLI UK Smaller Companies Fund has comfortably outperformed over the longer term. Over the past five years it has delivered growth of 80.2%, making it the best-performing fund in the sector. This compares to 18.0% for the average fund in the sector and a loss of 22.8% for the Invesco Perpetual UK Smaller Companies Growth Fund. Please remember that past performance is not a guide to future returns.

What sets this fund apart from its peers is the exceptional stock picking talent of its manager, Harry Nimmo. He has managed this fund since its launch in 1997, looking for companies with proven business models and recurring revenues. He also likes companies that are managed by their original owners or where the chief executives have been there a long time, signalling the management’s commitment to the business. If he gets it right, which he frequently has, and a company grows in value to become a medium-sized company, he will run with these winners. Given the quality of the manager, we believe the SLI UK Smaller Companies Fund is well placed to deliver excellent long-term returns.