For me, the key takeaways have to be it’s been a really tough decade for UK small caps. You could probably say it’s a lost decade. You would’ve been better investing elsewhere.
UK small caps are therefore very, very cheap. But again, we’ve been saying that for many years now. Being cheap in itself isn’t enough. We need to be thinking about what are the catalysts that can really move the needle here.
Firstly, from a macro perspective, you know, I think there is still an argument that there could be improving macro indicators going through 2027. Perhaps we will see the interest rates coming through from a cutting perspective, and maybe we’ll see more political stability.
More importantly, I think is the flow dynamic. If we just see a stemming of the outflows from this part of the market, that should be enough to underpin the valuations from here. And then you’ve got the continuing takeovers in M&A in the space. This shines a light on how undervalued this part of the market is.
So there’s no silver bullet, there’s no easy answer. It’s a combination of these things coming together that should help to drive a re-rating of this part of the market.
I’ve always looked at UK smaller companies, and the exciting thing is that there’s fantastic businesses. But to your point of why now, I’ve said that UK small caps are cheap, and we want that to all change because all ships will rise.
However, from my perspective, I’m a growth investor, but at a reasonable price, so I don’t want to overpay for these assets. So for me, there’s quite a unique investment opportunity where there’s kind of lots of company that fit my quality growth criteria, but there’s also increasingly more companies that fit my valuation criteria as well.
So from my perspective, the investment universe is much richer than it was in the past.
It’s actually my first time attending this conference, and what I would say is I’m absolutely blown away by the sheer number of people that have come out on what is a very blustery October day. But it’s more than the number of people. For me, it’s the level of engagement that we’ve seen from the people sitting within the audience.
From a UK small cap perspective, we’ve seen persistent outflows from the sector, from institutional investors who have been allocating away from our part of the market for one reason or another.
So for me to have the opportunity to stand up to speak to an engaged audience who are looking at the nuances of this part of the market and taking a long-term view, I think that’s a fantastic opportunity to potentially fill the gap that’s being left by these institutional investors who are leaving the space.