Montanaro UK Smaller Companies outperforms as ‘tide turns on UK equities’ – Montanaro UK Smaller Companies (MTU) has posted its half-year report for the six months to 30 September 2021. During the period, its NAV gained 18.2% in Sterling terms (with dividends reinvested), outperforming the benchmark by 9.2%, while the share price gained 15.3%.
Statement from Charles Montanaro:
The period under review was bookended by two market rotations. In April, we saw the tail end of a Value rally following the approval of the first Covid-19 vaccines in November 2020. As MUSCIT entered its 27th financial year, Growth stocks began to outperform in a rising equity market that was boosted by increasing economic growth revisions. In the UK, as in many developed economies, we enjoyed the strongest GDP growth forecasts since the Second World War. The upward trajectory of markets continued into the summer months as confidence in the economic recovery was bolstered by accelerating vaccination programmes.
Towards the end of the period, the second of the Value rallies began as investors shifted their attention to the risks associated with rising interest rates and emerging pockets of inflation.
Meanwhile, after years of steady outflows from domestic UK equities, the tide appeared to have turned. In the decade to the end of 2020, over £600 million was withdrawn from UK SmallCap funds according to the Investment Association. Since the beginning of 2021, over £700 million has come back to the asset class, an indication that on a global basis the UK looks attractive as the economy reopens and the overhang of Brexit fades.
The fizz appears to have gone out of equity markets at the time of writing. September and October have historically been tricky months for investors, so a period of consolidation may be no bad thing. UK SmallCap investors, who have had plenty to cheer about in recent years, are sitting on double-digit gains so far in 2021.
Through all the uncertainty and change all around us, the Montanaro investment process and philosophy remains the same: to invest in the highest quality, growing smaller companies bought at reasonable valuations and to hold them for as long as possible. Rather than worrying about whether inflation will rise or fall, we prefer to invest in companies that have the pricing power to pass higher input costs onto their customers. This means that we look forward to the future with confidence. The companies held in the portfolio have a spring in their step not seen for a couple of years.
MTU : Montanaro UK Smaller Companies outperforms as ‘tide turns on UK equities’