How should managers view UK smaller companies against the current economic backdrop?

Dan Nickols manager of the Old Mutual UK Smaller Companies fund, asks if UK smaller companies should realistically be trading at a discount to their large cap peers

As we approach the end of the first quarter, I have been surprised by the strength of the UK equity market. There have been plenty of things for investors to worry about - the slowing rate of growth in the US and China, the impasse in eastern Ukraine, a renewed risk of a break-up of the eurozone centred on Greece, and last, but not least, the forthcoming UK election.  Yet year-to-date, the FTSE 100 index has risen by 8%, the FTSE 250 is up 10%, and the Numis Smaller Companies index is around 7.5% higher. Why are investors in optimistic mode? As I see it, there are two key reasons. ...