More Fund Manager Favourites

Last week I looked at three fund manager favourites in the FTSE-350 index. Now I'm going to look at three shares favoured by some of the best smallcap fund managers.

Chemring

Chemring (LSE: CHG) has been a superb stock market performer in recent years -- its share price has quadrupled since 2003. And it looks like there could be more growth to come.

The company is primarily a defence business. It supplies countermeasures which protect planes and other vehicles from missile attack.

Chemring claims to be the world leader in this market and says that it supplies more than 60% of the US military's total requirement for decoys. The company also produces military pyrotechnics and has a marine safety division which it hopes to sell.

Chemring's order book now stands at £160m -- significantly larger than total revenue for 2005 which came in at £132m. What's more, defence companies are, to coin a phrase, defensive investments. In other words, they tend not to be greatly affected by the economic cycle.

Earnings per share are expected to rise 43% this year to 60p. Sure, at 1,140p its rating isn't cheap, but strong growth plus a sizeable order book mean that Chemring's share price could have further to run.

London Capital Group

Spread betting is becoming increasingly popular amongst private investors these days.

If you want to try and cash in on the trend, then take a look at London Capital Group (LSE: LCG). It operates the Capital Spreads service for retail investors and offers several trading products for institutional investors too. On top of that London Capital also has eight white label partners for its spread betting operation. The company hopes to sign up further partners this year.

December's flotation on AIM means that London Capital has a strong balance sheet with net funds of £5.6m at the end of 2005.

The risk here is that we enter a bear market and trading levels fall. Still a price/earnings ratio of 17 looks reasonable given spread betting's increasing popularity.

Harvey Nash

Harvey Nash (LSE: HVN) is a long-standing favourite of Peter Webb, the well-respected manager of the Eaglet Investment Trust (LSE: EIN).

Nash is a recruitment company, primarily for senior IT personnel. The company had a rough time during the tech crash, but things are now going well -- especially in Europe.

Last month's full year results revealed that turnover had risen 24% to £202m while earnings per share had soared 43% to 5.6p. At 66p, that puts the company on a price/earnings ratio of 12.

On the downside, recruitment is a very cyclical business. In bad times, employers hire far fewer new staff. Nevertheless a dividend looks possible in the near future and Nash should have more growth ahead.

More ideas?

Are you looking for more smallcap investment ideas? Champion Shares could be just what you need. We've recommended eight smaller companies since the service launched last September and they've delivered a decent performance so far. Sign up for a free 30-day trial and you could read all eight tips now.

On April 28, the Champion Shares portfolio was showing an average gain of 18%. The equivalent figure for the FTSE All-Share index was 11%. Performance figures are based on mid-prices taken at the time of recommendation. They include due dividends and exclude costs.