What Citywire says:

The Standard Life UK Smaller Companies fund is one of the strongest long-term performers in its sector, but Citywire AA-rated Harry Nimmo admits the fund is likely to underperform in the coming few months.

Nimmo has seen his performance drop as the rally has taken hold, and argues that his focus on momentum, quality and growth during a time when value investing is rewarded means that pattern is likely to persist over the next three to four months.

The fund sits towards the top of the UK Smaller Companies sector over three, five and 10 years, with returns of -14.2%, 48.1% and 121% respectively, but relative performance over shorter time periods is less healthy.

Despite delivering returns of 11.4% and 10.3% respectively over one month and three months to the end of April, Nimmo has captured less of the upturn than some of his rivals.

Nimmo is sticking to his guns and refuses to get drawn into the value stocks that have led some of the recovery. ‘During these recovery phases there is more of a focus on value. But it is high risk and the mirror image of what we’re looking for,’ he said.

After a few months of modest underperformance, he argues that next year his style will reap rewards. ‘The next year it will change for the better,’ he said.

‘We might be going back to boom and bust. Inflation as an issue may return rapidly. I think in 2010 caution will start to be rewarded.’

He has, however, changed his view on the nature of the upturn in the markets. After initially believing it to be a bear market rally, he is now convinced we are in a bull market, and is moving into cyclical stocks as a result.