In Monday’s edition of the Press & Journal, Carbon’s Investment Director, Barry O’Neill, draws our attention to the value of investing in smaller companies, provided you are a long-term investor.
Barry explains that the FTSE 100, the index of the UK’s largest companies, produced a disappointing loss of 1.32% in 2015. This was worse than the more broadly based FTSE All Share index which rose in value, albeit by a very modest 0.98%. All in all, it wasn’t a great year if you invested solely in larger UK companies.
By comparison, your portfolio would have faired much better had it included greater exposure to smaller businesses. According to FE Analytics, the FTSE index of UK smaller companies was up by 12.99% during 2015. Barry points out that this type of investment does carry more risk, but that, on average, this risk has paid off in 6 years out of every 10 over the past 25 years.
As an example of the success that has been achieved by following this kind of investment strategy, Barry refers to the ‘Isa Millionaire’, Lord Lee of Trafford. He has enjoyed truly remarkable gains on his portfolio by exploiting the long-term growth potential of smaller businesses. Barry refers to the miracle of compound interest (or growth) and quotes ‘he who understand it earns it and he who doesn’t, pays it”. In which camp would you rather be?
You can read the whole of Barry’s article here or by clicking the image below.
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