Future Looks Bright For Micro-Caps, Research Reveals
May 17, 2022 (Investorideas.com Newswire) New research* from Downing Fund Managers, a boutique of established managers offering specialist single strategy portfolios that they believe have the potential to offer attractive long-term returns, reveals a positive outlook on UK micro and small caps from UK pension funds, other institutional investors, and wealth managers.
Its survey of 100 UK professional investors who collectively manage around £118 billion in AUM, reveals 95% believe now is a good time to invest in microcaps.
Eighty-six percent of respondents expect allocations to increase over the next to six to 12 months, with 30% predicting significant increases and 56% believing there will be slight increases. Only 14% say allocations will remain the same.
More than nine out of 10 (93%) of investors say that the discount micro caps currently trade at compared with the wider small cap universe is likely to increase over the next 12 months potentially making micro caps better value.
Two-thirds (67%) expect the discount to increase slightly while one-quarter (26%) say the increase will be dramatic.
Investors also see small and micro-cap stocks as offering diversification benefits with 85% saying they will become even less correlated with their large cap counterparts. Two-fifths say they will become significantly less correlated while 45% say they will become slightly less correlated.
The research suggests the micro-cap universe hosts a wealth of ‘hidden gems'. Ninety-five percent of investors say that the sparse analysis and media coverage given to the UK's smallest companies mean they present significant opportunities for stock pickers.
With so much attractive investment potential in small caps, 38% of respondents say retail investors should allocate 5% of their total portfolio to the sector. Twenty-seven percent say investors should allocate 4%, while the same number says they should invest 3% in small cap stocks.
Judith MacKenzie, Head of Downing Fund Managers, comments:
"Research shows that small and micro caps can adjust to changing circumstances in turbulent times far better and quicker than larger companies. They also have the potential to grow more easily in times of economic stress than larger companies. Given the UK economy's current issues that means now may be a good time to invest."
"UK small and micro caps are a large universe and many of the companies are unknown or not well explored. Investors need specialists in the sector to find the hidden gems."
For more on Downing Fund Managers visit: https://www.downing.co.uk/investor/products/downing-fund-managers
Notes to editors
*Downing commissioned the research company PureProfile to interview of 100 UK professional investors who collectively manage around £118 billion in AUM. The survey was conducted online in February 2022.
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