What catalyst will drive UK small caps to recover?

Staci West 10/11/2023 in UK

Scott McKenzie, co-manager of the WS Amati UK Listed Smaller Companies fund, tells us what we believes we need to see in 2024 for UK smaller companies to recover from a negative market sentiment.

Watch the full interview with Scott here https://youtu.be/QVB_A-SJ5bI

Scott McKenzie: Well, that’s the big question for us. Clearly, our own fund and many other small cap funds have suffered fairly badly in the last couple of years with the deteriorating economics and the interest rate increases, et cetera.

I think there are a couple of things here. A more stable economic environment will certainly help, whether that be interest rates peaking, inflation peaking, and also more political stability. I think we’ve obviously had an extremely unstable political environment here in the UK for the past three or four years. So all of those things should in theory, improve as we go into 2024. Obviously we have the election, but I think most people would probably acknowledge there’s likely to be a change of government of some sort. Hopefully that will bring more stability – remains to be seen.

I think the other slightly more glib answer is it really requires people to stop selling the asset class. What we’ve seen in the smaller company world is fairly relentless redemptions in small cap funds and people have lost faith with small cap as a market. So it almost doesn’t require new buyers, it just requires existing investors to stop selling. I think that’s, it seems like a glib response, but if that happens, then that would improve the situation fairly significantly.

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions.Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice.Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.

Related content