Ken Wotton speaks to FT Adviser on seeking diversity and consistency in small and micro cap holdings.
Ken Wotton, Fund Manager at Livingbridge Equity Funds, speaks to FT Adviser about current market volatility and how this stresses the importance of diversification – that is not putting all your eggs in one basket.
This can be especially difficult, Ken notes, as many equity-based income-oriented funds are disproportionately weighted towards a relatively small number of large-cap blue-chip stocks. This year, just 10 FTSE 100 index stocks will generate more than half of all dividend payments, according to the stockbroker AJ Bell’s quarterly Dividend Dashboard.
He believes this can cause a number of problems in the current economic environment, including sustainability concerns and the vulnerability of the yield of blue chip stocks.
In the context of this discussion, Ken suggests that small and micro cap stocks may reduce risks. He believes that well-managed small businesses with strong financial records are well-placed to maintain and grow dividends and to deliver capital performance.
He believes they can offer a valuable diversification opportunity and many smaller companies deliver greater consistency than expected.
Whilst small and micro cap holdings may feel counter intuitive to a strategy designed to reduce investment risk, adding some of these stocks to a portfolio dominated by blue-chip stocks can potentially make sense, especially in the current market.