Will Small-cap Stocks Recover?

UK smaller companies have delivered excellent long term returns which have outpaced the FTSE 100 over the past 60 years - but since the Brexit vote large caps have rallied

External Writer 2 February, 2017 | 9:31AM

Morningstar's "Perspectives" series features investment insights from third-party contributors. Here, portfolio manager Guy Anderson, The Mercantile Investment Trust gives his view on the outlook for small and mid-sized stocks.

The UK mid- and small-cap market has delivered excellent long term returns which have outpaced the FTSE 100, two years out of three, for the past 60 years. However, more recently, this trend has reversed, with the FTSE 100 posting the stronger performance in the immediate aftermath of the UK’s referendum to leave the EU.

This change is due to a combination of factors, the most significant of which being the greater exposure of mid- and small-caps to the UK economy, compared to the highly international nature of the FTSE 100. Interestingly, however, while perceptions may have changed, the UK’s economy reality has stayed robust since the EU Referendum, with growth actually outpacing forecasts, as consumption held up better than anticipated.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Greencore Group PLC90.45 GBX1.40
Phoenix Group Holdings PLC662.40 GBX-0.09

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