Brexit 3 months on: UK smaller companies surprise

Believe it or not, this Saturday marks three months since the EU referendum. In the immediate aftermath, UK smaller companies took quite a hit, with the FTSE Smaller Companies (ex IT) index falling 10.3% in just two working days¹. The FTSE 100 fared slightly better, losing 5.62% in value¹.

However, despite all the negative headlines, the UK’s largest companies were back in positive territory in less than a week². The UK’s smaller companies took a little longer – just over a month in fact³ – but still surprised many with their resilience.

The best performing Elite Rated UK equity fund in the three months since Brexit is Woodford Equity Income, run by the highly experienced Neil Woodford. It has returned 12.08%⁴. In second place is Evenlode Income (11.86%⁴) and in third place is R&M UK Equity Long Term Recovery. The FTSE All Share returned 8.06%⁴ over the same period.

The best performing Elite Rated UK Smaller Companies fund has been Liontrust UK Smaller Companies, which posted 10.34%⁴, followed by Marlborough UK Micro Cap Growth (9.17%⁴) and Marlborough Special Situations (7.36%⁴). All outperformed the FTSE Smaller Companies index, which returned 6.29%⁴.

Darius McDermott, managing director of FundCalibre, commented: “The UK stock market has been remarkably resilient in the past few months, bolstered also by actions from the Bank of England to add support to the economy.

“Many of the fund managers I speak to are starting to suggest the ‘easy money has been made’ out of the Brexit bounce and there is caution as the downside risks are yet to come through when we actually start the process of exiting the European Union.

“For this reason, I would particularly suggest that now is not the time to buy a market tracker. The recent surge is making the indices look expensive and you risk buying right as we are on the cusp of renewed volatility. Instead, I’d recommend a few carefully chosen active funds, whose managers will be looking to exploit this volatility, rather than simply being taken for the ride.”

¹ Source: FE Analytics, total returns, 23/06/16 (closing prices) – 27/06/16
² Source FE Analytics, total returns 23/06/16 – 29/06/16
³ Source FE Analytics, total returns 23/06/16 – 27/07/16
⁴ Source: FE Analytics, total returns, 23/06/16 (closing prices) – 21/09/2016, UK All Companies, UK Equity income, UK Smaller Companies

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.