F&C’s Robert Siddles believes US small caps will act as good inflation hedge when CPI starts to rise.
The manager of the £28.1m US Smaller Companies Oeic and $97.8m US Smaller Companies Sicav says the sector is positioned well for a recovery.
“If you believe inflation is returning, small caps are a very good inflation hedge,” he says.
“When inflation returns nominal GDP growths tends to be quite fast and these companies are leveraged to grow.
“Also, customers will expect prices to rise and smaller companies will benefit more in relative terms from these price rises.”
Siddles says the strong performance of the market, which has seen the Russell 2000 return 37.82% over 12 months, is making it harder to find opportunities.
However, one area he does like is manufacturing.
“We have about 30% of the fund in manufacturing at the moment. A lot of capital will be spent on developing resources and, in Asia, infrastructure. With the weak dollar I think US companies will benefit,” he says.
He also has an overweight to aerospace and defence.
“It is an area which had lagged over concerns about a reduction in spending in this area. We tend to be contrarian and when we looked at this area more closely, we found it was populated with some really well run companies,” he says.
Siddles biggest position is in the iShares Russell 2000 ETF with a 4.3% holding, however the manager says he is using it as a method of managing cash flows rather than as an investment strategy.
The US Smaller Companies Oeic has returned 30.5% over 12 months to 15 February, compared to an IMA North American Smaller Companies sector average of 25.6%.
