Why are UK smaller companies such an unloved asset class?

Staci West 09/11/2023 in UK

Scott McKenzie, co-manager of the WS Amati UK Listed Smaller Companies fund, tells us why he believes UK smaller companies have been unloved since the Brexit vote in 2016.

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

Scott McKenzie: I mean I think it’s tied up in the perception of the UK in general, particularly since the Brexit vote in 2016, we’ve seen pretty much constant selling of UK equities since that period. And that applies not just to smaller companies, but also to the FTSE 100 as well. And we’ve seeing very significant outflows from UK assets in general, and that applies to retail servers, it applies to pension funds, our clients who are wealth managers and advisors, virtually everyone that we can think of has been a net seller of UK stocks. Ironically, the only buyers of UK stocks have been non-UK institutions. So, the foreign ownership of the market is now at all time highs. It’s domestic selling that has been a problem. And I think we just have to kind of regain belief in the UK as a place for exciting growth companies to list and to prosper. We’ve kind of lost that in recent years.

Another aspect of the unloved nature is that UK small cap is a relatively small asset class. It’s seen as fairly illiquid. If the UK is a whole now is only about 4% of the MSCI World Index, it’s gone down considerably over the past 10, 20 years. And within that UK small cap is seen as a very small specialist niche area. So, we have to somehow as a community in small cap, re engender that enthusiasm for small growth companies. I think that’s the key challenge.

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