FRANKLIN UK SMALLER COMPANIES (B7FFF70)
This smaller company specialist fund has been overhauled since Richard Bullas and Paul Spencer were named as comanagers in June 2012. The fund runs on a combined quality and value mixture, hoping to identify a basket of 40 to 50 stocks that offer either high-quality growth, are undervalued and overlooked, or are out-of-favour cyclical companies capable of recovery down the line.
Potential investments are then subject to a valuation test. This involves a series of in-house models that assess appropriate multiples for common valuation metrics, and what they might be in five years’ time.
These typically include aspects like enterprise value to earnings before interest, tax, depreciation and amortisation, or EV/EBITDA for short. It also uses the EV/EBITA measure which strips out depreciation of assets from the previous metric, as well as price-to-book which is a traditional balance sheet valuation benchmark.
The portfolio currently includes document management specialist Restore (RST:AIM), broadcast cameras designer Vitec (VTC) and parts and components supplier to the engineering industry, DiscoverIE (DSCV). There are several other engineering and electronics industry suppliers in its portfolio.
Savvy stock spotting has helped Franklin UK Smaller Companies beat its benchmark FTSE Small Cap index in four out of the past five years and AJ Bell experts like the fund’s disciplined approach and collaborative team style. (SF)
Vitec is one of Franklin’s fund holdings