Lipper Snaps UK-European small/mid-cap funds stay defensive

* Outperformers fear tax hikes, "anaemic" growth

* Underperformer RCM positions for Q3 end to UK recession

By Claire Milhench

LONDON, July 6 (Reuters) - Top performing UK and European small and mid-cap
fund managers are sticking with defensive stocks in the expectation of weak
growth as the sector continues to lag the large caps.

The Lipper Global European small and mid cap index was up just 0.48 percent
in June. It is up 17 percent in the last three months but down 27.5 percent in
the last six months. The UK equivalent was up 0.68 percent in the month.

"We still think economic growth will be anaemic and that the recovery will
be difficult," said Philip Dicken, manager of the Threadneedle Pan European
Smaller Companies Fund, which returned an outperforming 0.98 percent in June. As
a result, he said he was staying defensive for a while longer.

It was a similar story for the best-performing fund in June among mutual
funds with more than $25 million in assets -- the Schroder UK Smaller Companies
Fund, managed by Andrew Brough and Rosemary Banyard, which returned 4.27
percent. For a full list of sector leaders and laggards, see the table below.

Banyard attributed the outperformance to having two bid situations in the
portfolio -- BPP (BPP.L), a legal training company, and Goldshield Group
(GSD.L), a healthcare stock.

But the portfolio is also betting on new technologies or companies which the
managers believe will do well regardless of the economic situation, such as
Zytronic (ZYT.L), which develops touch screen technology.

"We are conscious that the consumer could be hit next year with tax
increases, and in government spending it's a bit uncertain where the cuts will
fall," she said.

Accordingly, the fund managers are sticking with defensives such as
pawnbrokers Albemarle & Bond (ALBH.L) and Dechra (DECP.L), a veterinary
pharmaceuticals company.

Conversely, Andrew Neville, who manages the Allianz RCM UK Mid-Cap Fund,
which was down 2.63 percent in the month, said he was positioning his portfolio
to take advantage of an earlier-than-expected economic recovery.

Neville said he expected the UK recession to end in the third quarter of
this year and has packed his portfolio with housebuilders and stocks linked to
the residential property market such as Taylor Wimpey (TW.L), Bellway (BWY.L),
and Travis Perkins (TPK.L).

"I am probably the most bullish person I know," he admitted. "The fund has
held on to the rally, but I am looking ahead and investing for what I think the
economy will do in six months' time. I expect house prices to have stabilised by
the end of the year and the economy to be out of recession."

FUND LEADERS IN JUNE

Fund name 1 mth(%) 3 mth 1 yr 3 yr 5 yr

1. Schroder UK Smaller 4.42 24.76 -13.75 -25.01 4.16

Companies
2. Discretionary Unit UK 3.63 27.46 -35.38 -42.78 -18.69

Smaller Companies
3. Schroder Institutional 3.57 24.45 -4.78 -19.62 9.78

UK Smaller Companies
4. Vontobel Fund European 3.55 24.23 -31.31 -31.10 11.41

M&S Cap Eq B EUR
5. Franklin European Small- 3.46 17.94 -8.98 -15.89 44.29

Mid Cap Growth A Acc EUR
6. Cavendish Opportunities 3.24 24.33 -20.77 -30.61 -6.32

Retail
7. F&C European Small Cap 3.18 28.13 -27.59 -39.78

8. Aberdeen UK Smaller 3.16 17.42 -12.47 -31.81 -4.80

Companies A Acc
9. Martin Currie GF Pan- 3.02 13.79 -35.25 -42.59 -1.60

European Opportunities
10. Marlborough Special 2.90 19.56 -10.91 -2.93 45.37

Situations

FUND LAGGARDS IN JUNE

Fund name 1 mth(%) 3 mth 1 yr 3 yr 5 yr

1. Axa WF Human -3.95 12.52 -21.80

Capital A Cap EUR
2. Henderson European -3.61 13.77 -30.10 -24.98 36.82

Smaller Companies A
3. Old Mutual UK Select -3.51 2.95 -12.47 -7.63 53.56

Mid Cap A Acc
4. Henderson Mainstream -3.42 2.82 -15.92 -14.77

UK Equity I Acc
5. JPM Europe Smaller -3.28 6.94 -31.11 -25.46 45.67

Companies A Acc
6. Dimensional UK Core -3.03 5.35 -16.06 -21.65

Equity Acc
7. Axa WF European Small -3.00 10.29 -31.78 -34.81 16.39

Cap Equities A Cap
8. Allianz RCM UK -2.63 4.24 -19.87 -21.04 25.01

Mid-Cap A Acc
9. Credit Suisse UK -2.59 3.51 -11.27 -11.45 29.49

Mid 250 Retail
10. Ennismore European -2.55 -1.65 -17.34 -8.72 42.67

Smaller Companies GBP

Lipper, a Thomson Reuters company, is a fund research and analysis
organisation, providing independent insight on global collective investment
including mutual funds, retirement funds, hedge funds, fund fees and fund
expenses to the asset management and media communities.

Lipper data covers 196,000 share classes and more than 108,000 funds in 57
registered-for-sale universes. It provides the free Lipper Leader ratings for
mutual funds registered for sale in 27 countries. Additional information is
available at www.lipperweb.com.

(Reporting by Claire Milhench; additional reporting by Cecilia Valente;
Editing by Erica Billingham)