Shares: Think small to rake in big gains

PRIVATE investors probably feel that shares are doing well in 1993. Institutions may feel less happy.

The FT-SE 100 share index, consisting of blue-chip companies favoured by institutions, has gone nowhere in 1993. By contrast, the FT-SE 250 index of medium-sized companies is up 10 per cent and the index measuring the performance of small capitalisation stocks has shot ahead by 20 per cent.

I guess that this striking outperformance by smaller companies' shares will continue for a variety of reasons: there are years of underperformance to correct; institutions are underweight in the sector; private investors are coming back into the market; and money is pouring into small company specialist funds.

My eight nap selections for 1993 have had a terrific start, despite two of my selected companies, Pittencrieff and Benson Group, giving profit warnings and a third company, S & U, reporting disappointing figures. Benson and S & U are down modestly on their recommendation prices, but Pittencrieff is still 291p against a selection price of 253p, having peaked at 403p. I expect all three to rally in due course.

These minor setbacks have been offset by some sizzling gains. The unit trust group Perpetual recently reported first- half profits up more than 130 per cent, taking its shares to 475p, against my recommendation price of 230p. Almost as stunning is Sheffield Insulations, up from an adjusted 87.5p to 172p, helped by City appreciation of its coup in taking over WMS, a designer and importer of architectural ironmongery. Neither share should be sold.

In January I devoted an entire column to ICI at 1109p, taking the simplistic view that every demerger has worked in the past, so why, despite much City cynicism, should ICI's proposals be an exception? So far old ICI at 674p and new Zeneca at 634p are showing a combined gain of 17.9 per cent in a market where big-company shares have gone nowhere.

I also did well with my theory that the advertising sector was ripe for recovery. Only Saatchi & Saatchi of my four selections has marked time. Abbott Mead Vickers is up 21 per cent, Gold Greenlees Trott up 6 per cent and WPP, driven by US buying, has soared 51 per cent.

A random selection of smaller company shares has also produced excellent results. Danka Business Systems, the US office equipment company, which is growing at an explosive rate, is 773p against a recommendation price of 560p. Dawsongroup, the truck rental specialist, first recommended at 77p in February 1992, attracted a re-recommendation at 189p and has moved up still further to 222p. Like Perpetual, Dawsongroup is a superbly managed business and will reap spectacular rewards as demand revives. The shares are still an exciting investment. Last of that week's trio was Boosey & Hawkes, up from 1125p to 1190p. As a retailer of instruments and an owner of valuable music rights, it is well-placed to score from the growing enthusiasm for classical music.

It is impossible to invest without upsets and readers who may suspect that these are skilfully edited highlights of my investments will be reassured by my list of duds.

I am a great bull of health- care stocks, but two choices, ML Laboratories and Bespak, are showing losses of around 15 per cent although only Bespak has a problem. My other health-care selections, Takare, Quality Care Homes, Tunstall Telecommunications and Seton Healthcare, are all showing moderate or good growth.

The biggest disaster was Dell Computer, whose shares have suddenly plummetted to dollars 25 from a recommendation price of dollars 46. Despite rocketing sales growth, it has taken heavy losses on attempts to develop notebook products. It should recover after a couple more flat quarters.

That is all the bad news (may the rest of 1993 be as painless). Other notable successes have included the March advice to go back into Japan, and I hope that my latest enthusiasm, for property shares (see last week), will do as well, helped by the boost of George Soros's link with British Land, which has already shot ahead from my 316p recommendation price to 324p.