Led by investment director Graham Bird of Gresham House Asset Management, the asset managers have been successfully pursuing a public equity investment strategy, and specifically in my own small-cap hunting ground. There are more than 1,200 constituents of the FTSE SmallCap, Fledgling and Alternative Investment Market (Aim) indices, many of which have limited analyst coverage and often have limited access to growth capital. It's the main reason I specialise in this segment of the market, given the potential for uncovering value opportunities that are being largely overlooked by the wider market. It's no coincidence, either, that my 2017 Bargain Shares Portfolio, to be published later this week, is chock-full with anomalously priced small-cap value plays.
I am not alone in believing that following a value strategy, and a focus on the small-cap segment of the stock market, is a shrewd route to achieving above-average investment performance. Jonathan Dighe, commercial director of Gresham House, makes a strong case that the rotation from growth to value stocks, which started to gain traction towards the end of 2016, is likely to continue this year. Bearing this in mind, he highlights a significant gap between the ratings of larger and smaller shares in the FTSE All-Share index. According to Mr Dighe, the average prospective enterprise value to cash profit multiple for those companies with a market capitalisation above £250m is around 12.5 times, but only 7.3 times for those with a valuation below that level, suggesting "the valuation discount for smaller companies provides an opportunity to create superior long-term investment returns".