It focuses on structural growth businesses that the managers believe can add value in the under-researched small and mid-cap part of the market.This paper explores the risk perceptions of key stakeholders in SMEs when making decisions on technology investments. In terms of access to UK smaller companies, investor may like the Liontrust UK Smaller Companies fund, which targets companies which meet three specific criteria: intellectual property, strong distribution channels and/or significant recurring business.Īnother to consider is TB Amati UK Smaller Companies. Another is Marlborough Multi-Cap Growth fund, which currently has more than a third of its portfolio in UK mid-caps^. Chris will look for companies that are high quality (both financially and in terms of their management teams) that can show sustained profitability, and that exhibit future growth potential. The fund targets UK companies that are benefiting from structural tailwinds. Those looking to tap into the mid-cap market may like the Axa Framlington UK Mid Cap fund, managed by Chris St John. The past six months have been all about recovery plays, but with markets re-opening (as opposed to recovering) we could see a number of quality companies in this bracket reaffirming their positions as financial support is turned off. We are now at an interesting point for markets – and UK small and mid-cap businesses are no exception. Whitestone goes on to cite the likes of retail, veterinary services, electrical component distribution and building materials as a few examples****. Whitestone says this is “unfolding across many industries as the differentiated and financially strong take market share at an accelerated rate from the weak and solidify their market leading positions”. The first is digital transformation, but the second one caught my eye – the idea of “Corporate Darwinism” – essentially the strong getting stronger. I recently read a note from Blackrock Throgmorton Trust portfolio manager Dan Whitestone, who believes there are two major trends set to dominate at stock and industry level. We’ve now moved into an environment where mergers and acquisitions – an important part of the small-cap space when it comes to making profits – could well pick up as the combination of low interest rates and a weaker pound peaks the interests of potential buyers.Īnother important factor to remember is that Covid has also changed consumer behaviour – which has created significant dispersion in performance across industries and sectors. It’s a similar argument for small-caps in terms of resiliency. There have been plenty of examples of management doing precisely that in the past 12 months. They can have different levers for growth and opportunities, such as additional products and services, or expansion into other geographies***. What’s behind this resiliency?Īberdeen Standard points to the ability of mid-caps to be more adaptable or simply nimbler that their larger peers. Some sectors have already bounced post the vaccine announcement, but others could still make big gains once the economy re-opens fully. That’s interesting for mid-caps in particular as the FTSE 250 has had a number of companies that have faced significant challenges due to Covid – the likes of airlines, travel companies, restaurants and pub chains. I would even say both UK mid and small-caps do not look particularly expensive given the UK recovery is still lagging compared to other parts of the world.ĭon’t forget that the market has just started to open up. However, it is also interesting that over five years (which fully covers the Brexit overhang) both indices have comfortably beaten the FTSE All Share**.
Since the lows of March 2020, the FTSE 250 has risen more than 75%, while the FTSE Small-Cap has risen 111%*. History shows the extra risk taken in this area is often rewarded, and I do not see why it would be any different in this case. We are long-term investors and, as such, we always believe the greater opportunities will come in the small and mid-cap space. In any normal situation, now would probably be the time to think about cashing in – but on this occasion it feels like there is plenty more progress to be made as the economy begins to return to some semblance of normality. Therefore, I was pleasantly surprised to read that both indices had recently approached all-time highs*. It’s no secret that UK mid and small-caps have been through the wringer in the past five years, courtesy of Brexit and the Covid pandemic.
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