Nimmo predicts 10% growth in small caps

Standard Life’s Harry Nimmo is predicting UK small caps will rise 10% in 2011, driven by emerging markets.

The manager of the £784m UK Smaller Companies fund says the sector will benefit from exposure to emerging market growth, although he expects the next six months will be led by companies with more speculative businesses.

“I do not think it is going to be a spectacular year in 2011, but I expect the Hoare Govett Smaller Companies index to deliver about 10% and I think we will do better,” he said.

“At the moment, markets are being quite buoyant and new issues are finding it easier to raise money. That has helped these blue sky companies, things like Rockhopper and one or two of the gold stocks.

“They have been doing quite well and I think they will have a good six months, but they are not the sorts of names I have in my fund.”

Despite small caps delivering two years of growth, Nimmo is confident the sector can maintain momentum.

In 2009, the Hoare Govett Smaller Companies index returned 60.73%, while year to date it is already up 20%.

“I believe in the recovery in smaller companies as many of them are plugged into what is happening in emerging markets,” he said.

“One of the things in our favour is large caps are uninteresting. The top 20 lack growth and are more highly geared, to the point they could just as well implode, and they have a poor record for cutting dividends.

“If the big companies want growth, they have to acquire small and mid caps. The large caps are very unattractive.”

Nimmo has 11% exposure to retailers, nearly half of which is placed with online clothes shop ASOS.

“All of these are companies that will grow regardless of the state of the economy – they have interesting international opportunities,” he said.

“For example, JD Sports, which also owns a chain of French shops, or Dunelm Mill, which is growing very strongly. These are not yesterday’s stories like the big retailers such as Marks & Spencer.”