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UK small caps overtake large peers as the outlook brightens

Small listed UK companies Compete beyond good stocks In the last year Brexit’s decline in anxiety Rapid vaccine deployment has boosted the UK’s economic outlook.

The FTSE index for small-capitalization stocks, excluding investment trusts, has surged nearly 70% over the past year, well above the 23% rise for the FTSE 350 index, the largest stock listed on the UK market.

As a sign of rally strength, the small cap gauge hit a record high on Tuesday, but the UK benchmark FTSE 100 is more than a tenth below its 2018 peak.

The dramatic increase is part of a global shift of investors to smaller stocks since the breakthrough in coronavirus vaccines last November. But they also Increasing attractiveness of UK SMEs After years of Brexit uncertainty.

“The UK is a great place for small investors,” said Hamish Galpin, Head of Small and Medium Investment at Federated Hermes. “You have a very wide and deep market,” says many quoted companies.

Indriatti van Hien, UK Equity Portfolio Manager at Janus Henderson, has historically outperformed small caps because of their fast growth from internal businesses and high likelihood of acquisitions by large corporations.

Those mergers are starting to accelerate. For example, private-equity group Siris Capital approached service provider Equiniti on potential acquisitions. Equiniti’s share price has risen 58% year-to-date to a market capitalization of £ 640m.

The UK’s vaccine rollout and heavier weight in sectors such as travel, leisure and retail also give small businesses an edge over large cap stocks, Van Hien added.

“Last year, Covid-19 created this huge turning point in valuation between stocks,” she said. “This is a snapback of what happened last year when stay-at-home” stocks were strong and “going to work” stocks struggled. “

The closing of trade negotiations with the EU at the end of last year has also helped the UK close the gap with other markets.

Susanna Streeter, senior investment and market analyst at Hargreaves Landsdown, said another factor behind small caps is the lower cost, smaller and more agile workforce to do business. Said that it has the advantage of enabling a quick response to the crisis.

“Many small businesses have a digital forefront and business center,” she added. “While some large companies find it difficult to move quickly into this new digital world, it’s almost inevitable that they will see this rapid growth.”

Among the top-performing small businesses in the UK over the past year she chose were retailer Halfords, which raised prices by about 240%, and logistics company Clipper Logistics, which raised prices by more than 220%. The latter benefits from the remaining tooth-growing problems that affect trade with Europe.

Year-to-date rate of change bar chart showing the largest small cap winners in 2021

Guarantee loan lender Amigo Holdings saw the largest rise in 2021, with stock prices rising about 190%. Other successes include card factories, logistics provider Wincanton, and peer-to-peer lenders Funding Circle.

Jeff Cranetop, chief global investment strategist at Charles Schwab, said the UK has been particularly successful in small caps, but the rise is not unique.

The MSCI Index for small caps across the global developed markets has risen 14% on a US dollar basis since the beginning of the year, compared to a 10% rise in the wider MSCI World Index. In the United States, the small cap Russell 2000 rose 14%, while the benchmark S & P 500 was 11%.

According to Kleintop, among the factors that helped raise stock prices were a significant number of share buybacks, in which the sectors (industry, discretionary spending, finance, etc.) were in the early stages of economic growth. Often beneficiaries of.

Globally, inventories in many Covid-infected sectors, such as travel, leisure and gyms, could be strengthened by a tough year, Garpin said.

“Competition has dropped out. Some competitors have a great opportunity to gain market share,” he said. “Investors need to combine both. They need a Covid-19” winner, “but there are also good companies,” losers. ” “

UK small caps overtake large peers as the outlook brightens

Source link UK small caps overtake large peers as the outlook brightens

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