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Equity Research & Insights

UK Barometer: July 2021

Mid and small cap stocks were the best performers last month in the UK

James Gard 3 August, 2021 | 9:05AM
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Barometer showing changeable weather

Every month we look at how the stocks in the Morningstar UK Index have performed according to size and investing style. In a fairly tepid month for the wider index, mid and small-cap growth and blend stocks were the best performing in July, outpacing value stocks of all sizes. Overall small-cap value stocks are ahead for the year to date, although there are signs that growth stocks are starting to catch up as the value rally runs out of steam.

Mid-cap blend stocks were the best performing category in the index, gaining 4.23%, taking the year-to-date rise to more than 15%. This 4%+ gain is more impressive in the context of an underwhelming 0.70% gain for the index. Mid-cap blend is the largest category in the Morningstar UK index with 65 stocks, which  combine elements of value and growth companies. Having a foot in both camps has been useful this year as growth and value have tussled for dominance on a monthly basis; value started well this year but growth has made a comeback. As you would expect from a large range of stocks, there is wide dispersion in performance in the group, from an 18% gain for antivirus software company Avast (AVST) to a monthly loss of nearly 10% for hydrogen energy specialist ITM Power (ITM). ITM Power is also the worst performing share within this cohort in the year to date.

Performance of Stocks Over 1 Month and Year to Date

Morningstar UK Barometer Table

The category is also diverse in terms of industries, with housebuilders (Vistry, Taylor Wimpey) mixed in with asset managers (Schroders, Hargreaves Landsdown), supermarkets (Marks & Spencer, Morrisons) and airlines (easyJet, Jet2). Top performers so far this year include online casino company Gamesys (GYS), which has produced a chunky gain for investors of 64%, while takeover target Morrisons (MRW) and high street bakery Greggs (GRG) are among the select few to boast a 50% gain. Small-cap blend stocks were the next best performing category in July with a gain of 3.68% in July, taking the year-to-date rise to nearly 19%. This category is also a decent size, boasting 64 stocks including pub owner and former stock of the week Wetherspoons (JDW), electricals retailer Dixons Carphone (DC.) and price comparison site Moneysupermarket (MONY). Defence company Ultra Electronics is way out in front of the pack with a solid monthly gain of nearly 40% after a takeover approach from rival Cobham.

While mid and small-cap blend stocks had a decent month, large-cap blend stocks struggled to make headway, softening by -0.5%. The biggest detractor in this group was consumer goods company Reckitt Benckiser (RKT), whose shares fell 13% in July after a disappointing trading update and warnings about rising costs. It was a similar picture with growth stocks, with large growth names struggling, but mid and small cap stocks put in a decent performance, rising 3.5% last month. Within the midcaps, Watches of Switzerland (WOSG) was the best monthly performer, gaining a chunky 20%, pushing the year to date gain to 73%. “Revenge spending” has been a key theme of post-lockdown life, with some consumers keen to spend money saved on luxury watches and jewellery. In terms of yearly performance, Watches of Switzerland was only outpaced by magazine publishing company, Future (FUTR), whose shares have almost doubled this year. Future has pivoted successfully from print to online in the last few years and bought price comparison site GoCompare in late 2020.

Seven months into 2021, small-caop value stocks are still ahead with a gain of 25% and all categories have posted double-digit gains, apart from large-cap blend stocks, which are still up by a respectable 9%. Small-cap growth stocks, which last year were up nearly 40%, are up by just under 15% so far this year.

The Morningstar UK Index, which covers more than 300 stocks with a market cap ranging in size from £100 million pounds to over £128 billion, gained around 0.70% in June but is up 11% in 2021 so far – compared with a similar percentage loss in 2020. 

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James Gard

James Gard  is senior editor for Morningstar.co.uk

 

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