UK small cap valuations are too good to ignore
Neil Hermon, Portfolio Manager of The Henderson Smaller Companies Investment Trust, discusses the challenges small-and-medium sized businesses are facing, why they are more resilient than some might think, and why the small cap story remains compelling.
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- The perfect storm of the war in Ukraine, China’s zero-covid policy, higher interest rates, and elevated inflation amid a cost-of-living crisis has made it challenging for smaller and medium-sized businesses.
- We think that corporate fundamentals are intrinsically stronger than they were during the Global Financial Crisis of 2008-2009. In particular, balance sheets are more robust, dividends have been recovering strongly, and we are seeing an increase in buybacks.
- Valuations among UK smid-cap stocks are the cheapest they have been since the global financial crisis, and for long-term investors, this presents an attractive opportunity from a stock selection perspective.
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- If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio diversified across more countries.
- Most of the investments in this portfolio are in smaller companies shares. They may be more difficult to buy and sell and their share price may fluctuate more than that of larger companies.
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- Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
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