Investors turn to UK small caps after election

Investors turn to UK small caps after election

Investors placed more than £600m in UK mid cap and small cap funds in the aftermath of the UK general election, according to the latest data from Morningstar.

The data, released last week, showed £298m was placed in mid cap funds, with the HSBC UK Mid Cap Index, a tracker fund, attracting a net £137m of new money and the Franklin UK mid cap fund, attracting £106m. The joint manager of this fund, Paul Spencer, is leaving in June 2020.

Jonathan Miller, head of UK manager research at Morningstar, said the election outcome had been viewed favourably by markets and led to the inflows. 

UK mid and small caps had a tough 2019 when a combined net £251m was withdrawn. 

Mark Wright, fund manager at Seneca, said FTSE 250 stocks tended to outperform large caps because they were less well researched.

Mr Wright said: "The election result has removed a lot of the uncertainty around the UK, and that is positive for the shares of companies active in the UK domestic economy, which the mid caps often are.

"I think a lot of investors did their research prior to the election and have been able to put their money to work straight away since then."

Duncan MacInnes, investment director at Ruffer, said: "Relative to the other major economic zones, the UK stock market suddenly offers a compelling combination of political certainty, rule of law, low valuations, pro-business policies and potentially burgeoning economic momentum.

"As someone wise once said, ‘you make more money when things go from terrible to ok, than you do when they go from ok to good’.”

The fund house that attracted the highest net inflows in 2019 as a whole was BlackRock, with £6.8bn, an organic growth rate of 7.1 per cent.

The active fund house with the highest percentage increase in assets was Royal London, which grew its book of business by 17.5 per cent to £48.6bn.

The mid-year rotation away from growth towards value stocks didn’t hamper asset growth at Baillie Gifford, which had £1.7bn of new assets.

The firm with the largest outflows during the year was Invesco, which saw £9.25bn leaving the firm.

Half of those outflows came from just two funds, the Invesco Targeted Return and the Invesco High Income funds, and two-thirds of all Invesco funds domiciled in the UK had net outflows during the year.

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