The UK Smaller Companies sector has been one of the most rewarding for investors over the past decade. The average return from an investment company in the sector over the past ten years is 303% (to end of February 2020), compared to 166% for the average investment company over the same period*.
Despite this strong long-term performance, worries remain about the UK’s relationship with its largest trading partner, the EU, not to mention the recent market falls. What does the future hold for smaller companies in post-Brexit Britain and where are managers finding opportunities?
At a media roundtable held today by theAssociation of Investment Companies (AIC), Dan Whitestone, Manager of BlackRock Throgmorton Trust,Jonathan Brown, Co-Manager ofInvesco Perpetual UK Smaller Companies Investment Trust, and Stuart Widdowson, Co-Manager of Odyssean Investment Trust, discussed their recent investment activity, the effect of the coronavirus on their portfolios and their overall outlook for the sector in post-Brexit Britain. Their thoughts have been put together alongside comments from Charles Montanaro, Manager of Montanaro UK Smaller Companies.
Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “Investors willing to back smaller businesses on home soil have done well over the past decade. An investment in the average investment company in the UK Smaller Companies sector ten years ago would have quadrupled in value. The recent marketsell-off is uncomfortable for investors. No-one knows what markets will do next but in the past investors who have kept their faith and remained invested have been well rewarded over the long term.
“This encouraging long-term performance shows that even though investing in smaller companies may carry more risk, it can really pay off over the long term. These rewards are amplified by the closed-ended structure. Given that many smaller companies’ shares can be illiquid, it’s a great advantage not to have to sell them into market downturns. Instead, closed-ended fund managers can invest right down to the smallest and least liquid companies in the knowledge that they will not have to sell these holdings before they are ready to do so.”