According to the Organistion for Economic Co-operation and Development (OECD), the US has done enough to avoid the “worst-case scenario”, and 2013 will see growth back on the table.
OECD secretary general Ángel Gurría explains: “The road to a strong recovery remains fraught with challenges, but measures taken in Europe and the United States have reduced the likelihood of a worst-case scenario.
“We have reached a point where bold and concerted action to get the right mix of macro and structural policies can make an upside scenario a real possibility.”
This is good news for smaller companies which, if the perceived wisdom is anything to go by, thrive in recovery periods such as the one currently taking place in the US.
Compared with large cap stocks, the smaller end of the market is racing ahead. In 2012, the Russell 2000 index outperformed the S&P 500 index by 2.34 percentage points and so far this year it is ahead by 2.37 percentage points.
This is a far cry from 2011, which saw the Russell 2000 index post a 3.84 per cent loss against an S&P 500 index gain of 0.74 per cent.
On a cumulative basis, small caps have had a good run. On a five-year basis, the Russell 2000 index has delivered almost twice that of the S&P 500 index.
When compared over 10 years, it has delivered almost double. From a fund point of view, the best performer in the IMA North American Smaller Companies index in 2012 was the $306.7m (£198.2m) Legg Mason Royce US Small Cap Opportunity, with a return of 16.03 per cent, more than double the sector average of 7.81 per cent.
The fund’s manager, Bill Hench, explains on page 40 that one of the key drivers of performance in the past 12 months has been increased activity in the area of mergers and acquisitions.
Meanwhile, the worst performing smaller companies fund last year was the £37.9m JPM US Smaller Companies fund, run by Eytan Shapiro and Chris Jones.
The fund produced a disappointing 3.37 per cent in 2012, with the manager’s noting in their latest factsheet that the market environment in the US “remains somewhat unfavourable for our higher growth approach”.
However, they added that stock picks in the technology sector and rebounds in the healthcare and consumer discretionary sector towards the end of the year helped improve performance.
In contrast to its 2012 performance, the fund has started 2013 more positively, with a return of 15.45 per cent for the year to February 18, compared with an IMA North American Smaller Companies sector average of 14.71 per cent, according to FE Analytics.
This supports the OECD’s suggestion of US growth this year; as a result, 2013 could be the time for US growth strategies to come back into their own.
The picks
FF&P US Small Cap Equity fund
This is a sub-fund of the FF&P Global Equities Umbrella fund and targets a balanced return of income and capital growth. At £14.5m in assets under management, this fund is on the small side and its five-year numbers place it in the fourth quartile. However, this has changed in the short to medium term, with its one-year return of 15.57 per cent placing it in the second quartile. This fund is one to watch.
