Over the past five years, investing in some of the World’s smaller companies have provided some of the best returns in equity markets. According to an analysis by the Money Management magazine, of the UK’s top 100 unit trusts, 33 invest in smaller companies.

The funds are invested in a variety of places – from smaller companies at home (which have provided some of the better returns), to Europe, and then to emerging markets. One of the best performing small UK companies has been Marlborough Special Situations which has turned an initial investment of £1,000 into £3,209. This compares to the average unit trust which over the past five years has averaged a return of £1,487 from an initial investment of £1,000.

Even more specialist funds have delivered even better performance over the past few years with some experiencing fantastic growth rates of up to 34%. However, a lot of these funds are at the riskier end of the scale and although over the five year period they have worked out well, there have been periods of volatility within the timescale, reinforcing the old advice that riskier funds can prove to be very lucrative, but they must be seen as a long-term investment because they are more prone to short-term volatility.

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