In Investment Week’s recent Bull and Bear column, Fund Manager Brendan Gulston considers how many investors are unaware that the comparatively underresearched small cap market is home to a vast number of high-quality smaller companies generating attractive and sustainable levels of income.

Brendan considers how in the current volatile economic headwinds, small companies tend to be more sheltered due to their positioning in niche markets and their ability to react with more agility than their larger peers. However, this advantage is largely overlooked due to the lack of research around this area of the market, causing investors to miss opportunities in high-quality smaller companies.

In addition, with many smaller companies trade at sizeable valuation discounts, this area presents an attractive opportunity for investors looking to diversify outside the relatively small number of mage cap stocks which tend to dominate UK equity income strategies.

Brendan suggests that success in selecting small cap stocks requires patience and commitment to investing in the research of this diverse group of businesses. One example of a hidden gem in the market is Strix Group, a global market leader in the design, manufacture and supply of kettle controls. Operating in a niche market, Strix has a strong, established position, which it leverages to drive sustainable, high-quality earnings streams.

To read the full article please visit Investment Week.

Please note, the views expressed in this article are Brendan’s own and should not be taken as investment advice.

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