James Carthew: When the small-cap recovery comes it could be big
The outlook for the UK equity market feels gloomier than ever. Headlines about rising core inflation, mortgage rates, government borrowing costs, and predicted interest rates reinforce the message that much more pain will be inflicted on British companies and consumers over the next year or two.
The oil majors and miners that were propelling the market higher are being undermined by falling commodity prices. The banks are simultaneously berated for profiteering and sold off on fears that bad debts will impact on their earnings. The overwhelming pessimism is particularly evident in the valuations of small and medium-sized companies.
Often, in these situations it can be helpful to go looking for the counter argument. Fortunately, I recently got the chance to catch up with Gervais Williams to talk about Miton UK MicroCap (MINI), which finds itself in the eye of the storm.
MINI was launched in April 2015. It focuses on UK companies with market valuations of £150m or less at the point of investment. Institutional investors, the big wealth managers and overseas investors rarely venture into this territory, which is largely the domain of the private investor. Decent investment research is hard to come by and so mispricing is more likely. Williams and co-manager Martin Turner believe that diversification is important in this part of the market and hence the investment trust is managed with well over 100 holdings.
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