He said valuations for smaller companies will face pressure if earnings expectations are not met.
While the trust suffered a three-year period of underperformance from 2009-11, it has picked up more recently, currently showing a NAV rise of 76% compared with 62% for its benchmark, the Numis Smaller Companies ex ITs index.
Whyte, one of a team of five managers on the £1.1bn trust, called last year’s performance “uninspiring” but pointed out that corporate activity was picking up across the small cap universe and the IPO market was set for its busiest year since 2000.
Right time for value
He told Winterflood that 'value stretch' in the smaller companies space had grown, with growth companies trading on increasingly high multiples and value stocks were looking more attractive.
Winterflood analyst Simon Elliott said as market appetite for small caps returned, discounts had understandably narrowed. He added the trust's performance had picked up as its value style came back into favour.
“We rate the experienced management team highly, although investors should be aware that their well-founded investment approach will face periods of underperformance. ASL is the largest and most liquid small cap investment trust, with assets of £1.1bn, and it also pays a decent dividend.
"However, it is expensive by historical standards at present on a discount of 3%. Consequently we currently retain our preference for funds that are available on wider discounts,” Elliott added.
Meanwhile the smaller companies space in Europe was looking increasingly positive, according to Jim Campbell, who runs the JP Morgan European Smaller Companies trust.
Campbell said their strong run can continue but stock selection was key, identifying three major themes: recovering financials – naming Germany's Aareal Bank and Spain's Bolsas y Mercados as two good buys; improving domestic demand in Europe – demonstrated in the fund with several retail names and housebuilder JM; and restructuring. This last theme is being played out through Danish cable manufacturer NKT and Italian shoe brand Geox.
Greater optimism
"Nearly every European small cap company that we speak with today is more optimistic. We started buying financials some time ago and we have progressed down the spectrum of cyclicals – from industrials to more recently construction and building materials.
"In our view there is still a perception gap in European equities – in some cases, investors just need for things to get less bad in order to feel better about the environment. That is what is happening in many of the countries as news flow improves."
