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When different areas of investment are compared, they are often different assets like equities vs bonds, different geographies like Europe vs Asia, or different sizes like large companies vs smaller ones.
But this sometimes means certain areas get overlooked. One such area is mid-caps – or the medium-sized companies that are neither small start-ups nor established bigger players.
There are thousands of medium-sized companies around the world that could be the large cap leaders of the future. And investors can share in the success of these companies as they expand and grow.
According to the team at abrdn, resilient UK mid-caps with the ability to weather economic downturns and the potential to benefit from market bounce-backs are currently trading at historic low valuations relative to larger companies, providing an appealing entry point into this equity subset.
What’s more, the team behind ASI UK Mid-Cap Equity fund say that, with very few analysts covering the sector, it means experienced investors can exploit market inefficiencies and really add value.
The outlook for global economies and financial markets is a tricky one, with higher interest rates, potentially sustained high inflation, and a lower growth environment suggesting uncertain times are ahead.
But the team believes that mid-cap companies selected using a quality, growth, and momentum process, combined with ESG analysis, are potentially well-placed to weather economic downturns, stating that “far from being dependent on externally-driven cycles, these companies are likely to expand in a predictable, sustainable way.”
“We also believe that in a changing world, smaller, nimble, well managed companies that can pivot their businesses more quickly than mega caps are well placed to take advantage of evolving opportunities,” the team said.
Because of the compelling opportunities in this area of the market, there are a number of funds that can invest in any size of company that tend to favour mid-caps and therefore have a bias towards them in their portfolios. Examples include Rathbone UK Opportunities, Artemis Positive Future and Matthews Pacific Tiger.
But for those investors looking to tap into this area directly, here are five Elite Rated mid-cap equity funds to consider:
AXA Framlington UK Mid Cap fund is unashamedly growth-orientated. While it naturally focuses on medium-sized companies, its manager will be pragmatic about including select opportunities from the smaller companies space, as well as letting winning mid-cap holdings grow into larger-sized companies. Manger Chris St John has a robust process and uses thematic long-term ideas to help construct a portfolio of dynamic growth companies that should benefit from these trends.
ASI UK Mid-Cap Equity is a high conviction strategy which invests in medium-sized companies for the long term. It focuses on businesses when they are well established, but still have a long runway of growth potential. Manager Abby Glennie has delivered excellent performance across a number of strategies. This fund is no exception. Her process leans on ASI’s screening tool, ‘The Matrix’, and is backed up with rigorous fundamental research and regular company meetings.
Run out of New York by manager Bob Kaynor, a distinguishing characteristic of this fund is that it invests in three different types of growth in the portfolio. Steady eddies’ or less cyclically-sensitive stocks act as ballast in the portfolio. ‘Mispriced growth’ are stocks where Bob feels the market has not fully understood the company’s earnings potential. The last and smallest bucket is ‘recovery-type’ situations.
ASI Global Mid Cap fund is an evolution of abrdn’s successful small and mid-cap desk and is designed for investors who have a lower risk appetite, but still like the growth profile associated with companies towards the smaller end of the market. There are three sources for ideas to populate the investment universe. The first of these are the ‘small cap graduates’, the second are ideas from the global abrdn network and the third will be some totally new ideas, or as spin-offs from research into other companies.
This is a concentrated fund focusing on small and medium-sized companies across global emerging markets. It can also invest in frontier markets should opportunities arise. The manager looks for quality companies that are exhibiting compound growth and that earn more than their cost of capital over the long-term. They will either be great companies at good prices, or good companies at great prices.