A single asset class money management company in the international sphere is relatively unusual. This is especially true in respect of European Smaller Companies given the capacity restraints which are inevitable if performance targets are to be adhered to. Munros has had such an exclusive focus for over 15 years and this will remain unaltered in the future. In reaching this strategic decision little attention was paid to the index performance of the asset class, despite its clear attractiveness. Rather the logic followed was to realistically analyse the skill set of the Munros team and to apply it to the most relevant equity medium. As a team we were both by belief and training active “bottom-up” portfolio constructors based upon fundamental company analysis. To most profitably utilize that skill set, therefore, we required a highly inefficient market place but one with sufficient size and depth that macro events could not easily deprive us of opportunity.

The ideal asset class for the Munros team was readily identified as European Smaller Companies.

The size and depth of the market is clear. Why, therefore, does such a market also exhibit a high level of inefficiency, despite the proliferation of high quality publicly available information? It is our belief that there are three key factors which have greatly restricted the participation of the money management companies in this asset class. These are:

• The required fundamental analysis is highly labour intensive

• The asset class is highly capacity restrained

• Limited availability of suitably experienced managers

The result is an asset class which is capable of subtending very attractive rates of return in both absolute and relative terms and is, in short, an excellent source of additional alpha. Securing such benefits, however, is only possible where a robust research process is combined with a talented and experienced team. Munros enjoys both of these integral features.