UK asset management company Henderson New Star believes opportunity lies in small and mid-cap companies' recovery plans.

According to fund manager  James Henderson, many companies acted quickly to avoid the same plight as Lehmans by stripping inventory, beginning new projects and attacking their cost base.

Earlier in the year prospects for the funding market looked bleak as investor appetite and liquidity were severely in doubt. However, disaster was averted when the debt issues behind the market’s jitters were addresses by investor cash calls and clear, strategic road maps being drawn up by companies.

In terms of dividend payments, Mr Henderson points out that many small and mid cap stocks have maintained or increased their dividend payments, despite uncertainty within the sector on this issue. HSBC is now the clear dominant force in terms of dividend payment for UK yield-focused investors, while Barclays is expected to revert to dividend-paying form sooner rather than later.

When Lloyds and RBS will be able to start paying dividends once more remains unclear, and patchy research regarding smaller companies is even less illuminating. In the meantime, investors with a dividend focus have had to cut their cloth accordingly and seek some more esoteric areas of dividend revenue.

Indeed, small well-managed companies trading below their historic book value offer fund managers the opportunity to diversify their portfolio and find growth - which will be more difficult to come by with the large caps.

Small companies that have seen the brink of collapse will have had to make the hardest decisions, says Mr Henderson, but their leaner, more efficient structure will make them more likely to see a strong profit recovery. Investors should look for companies which have succeeded at cash generation as it demonstrates quality of management and robustness.

The fact that companies have reduced their cost base means that it should only take a small improvement in sales to achieve a substantial improvement in profit margins. Furthermore, we are still very much at the early stages of the inventory restocking cycle.

Hendersons suggests that despite the recent improvement in sentiment, company analysts are still underestimating the potential for future corporate profits growth.

In the past 18 months, up until August, broker downgrades have exceeded broker upgrades. August finally bucked this trend, adding to the view that analysts remain behind the curve on both the upside and the downside.

Rallies are a common occurrence after sharp down turns, says Mr Henderson and many brokers remain sceptical about the recent rise. Thus the best portfolios do not simply buy into the UK economy, but into companies that have demonstrated that they can manage themselves through difficulty.