FRANKLIN UK SMALLER COM­PA­NIES (B7FFF70)

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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

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