| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 4.12% | -7.03% | -7.03% |
The UK Smaller Companies Fund returned -7.03% in Q1 2026, underperforming slightly versus the index (-6.93%) amid challenging market conditions. Geopolitical tensions from Middle East conflicts and the closure of the Strait of Hormuz drove energy prices higher, benefiting holdings like Serica Energy while pressuring inflation-sensitive sectors. Key contributors included North Sea oil producer Serica Energy, construction company Balfour Beatty, and Oxford Instruments, while detractors included housebuilder Bellway and litigation finance specialist Burford Capital. The managers opened new positions in industrial turnaround specialist Rosebank Industries and food manufacturer Greencore while closing holdings in Trainline, Telecom Plus, and Empiric Student Property. Despite near-term uncertainty from geopolitical risks and sticky inflation, the managers believe UK small-caps are well-positioned for recovery after a lost decade. Valuations remain attractive below long-term averages, earnings forecasts show positive momentum, and corporate balance sheets are robust. The persistent M&A activity and increasing share buybacks signal market recognition of the deep undervaluation in UK small-cap equities.
UK small-cap companies offer compelling value after a lost decade of underperformance, with attractive valuations well below long-term averages and positive earnings momentum following economic adjustment from rising interest rates.
Although uncertainty remains around short-term economic conditions, we believe the portfolio is well positioned to withstand current challenging economic conditions and participate in any upswing as it might occur. After a lost decade in UK smaller companies, we see good reasons why fortunes could change, with attractive valuations and positive earnings momentum.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Apr 15 2026 | 2026 Q1 | BBY.L, BUR.L, BWY.L, GNC.L, OXIG.L, SQZ.L | energy, Geopolitical, inflation, infrastructure, small caps, United Kingdom, value | - | UK small-caps declined 7% in Q1 amid geopolitical tensions and energy price volatility. Energy and infrastructure holdings outperformed while real estate lagged. After a lost decade, managers see compelling value with attractive valuations, improving earnings momentum, and robust corporate balance sheets positioning the portfolio for recovery when conditions improve. |
| Jan 16 2026 | 2025 Q4 | BBY.L, BWY.L, CHG.L, CVSG.L, DOM.L, MTO.L, OSB.L, QQ.L | Construction, defense, Government Policy, small caps, Uk, Valuations | - | UK small-cap fund underperformed in Q4 as defence stocks fell on peace speculation while construction names rallied on budget relief. Managers see attractive valuations despite macro uncertainty, adding facilities management and veterinary services exposure while trimming outperformers. Portfolio positioned defensively for current challenges but ready to participate in recovery. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q1 |
EnergyMiddle East conflict and closure of Strait of Hormuz caused energy price surge, benefiting North Sea oil and gas producers like Serica Energy. Rising oil prices threaten to fuel inflation and complicate monetary policy decisions. |
Oil Natural Gas Energy Trading Geopolitical |
InfrastructureStrong demand for UK infrastructure projects and higher growth in US orders supported construction companies like Balfour Beatty. Government planning reform and infrastructure investment remain key policy priorities. |
Construction Infrastructure Spending Government Policy | |
GeopoliticalOngoing conflicts in Middle East and Ukraine, plus heightened US-China tensions create significant uncertainty. Trump administration policies on tariffs, immigration and regulation add volatility to global markets. |
Trade Policy Sanctions Defense Policy Uncertainty | |
InflationSticky inflation above target in US and UK, exacerbated by oil supply shock from Gulf conflict. Central banks face challenging task of containing second-round inflation effects amid softening labor markets. |
Rates Monetary Policy Energy Prices | |
| 2025 Q4 |
Defense SpendingDefence companies Qinetic and Chemring were key detractors as share prices fell amid news of potential peace agreement between Russia and Ukraine. UK defence contractors are also waiting for publication of the government's Defence Investment Plan, which is slowing decision making. |
Defense Contractors Government Spending Geopolitics |
HomebuildersHousebuilder Bellway was a key positive contributor, with its share price rallying alongside UK domestic companies following the benign outcome of the UK budget. Bellway also reported encouraging preliminary full-year results. |
Housing Construction Domestic Budget Results | |
Infrastructure SpendingConstruction company Balfour Beatty's share price continued to rally following confirmation of strong order-book momentum and cash generation. The government faces challenges reviving economic growth with building blocks including planning reform in place. |
Construction Infrastructure Government Growth Reform | |
Small CapsAfter a lost decade in UK smaller companies, managers see good reasons why fortunes could change. UK small-cap valuations remain attractive and sit well below long-term averages, while earnings forecasts are beginning to stabilise. History demonstrates that small-cap stocks have performed best after periods of economic dislocation. |
Valuations Earnings Performance Dislocation Recovery | |
BuybacksCompanies' balance sheets are more robust and in recognition of deep undervaluation of their own equity, an increasing number of companies are buying back stock. This signals confidence in the UK equity market is slowly rebuilding. |
Share Repurchases Undervaluation Balance Confidence |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| No Elevator Pitches found | ||||||||||
| TICKER | COMMENTARY |
|---|---|
| SQZ.L | Serica Energy benefited from the rise in commodity prices due to conflict in the Middle East, as well as improved production rates. |
| BBY.L | Shares in Balfour Beatty performed well following the announcement of higher-than-expected margins in its UK construction and support services business, strong demand for UK infrastructure projects and higher growth in US orders. |
| OXIG.L | Shares in Oxford Instruments rose due to confirmation that order-book momentum had picked up materially in the second half of last year following a tariff-disrupted quarter beforehand. Demand for its compound semiconductor products was particularly strong. |
| BWY.L | Shares in Bellway performed poorly following its full-year results, where management flagged that margins were likely to be held back by slowing house-price inflation and rising building costs due to the conflict in the Middle East. |
| BUR.L | Shares in Burford Capital sold off following the US appeals court's decision to reverse the judgment made against Argentina regarding the nationalisation of energy company YPF. This will likely lead to material balance sheet write downs and have implications for Burford's future financing options. We have since disposed of the position. |
| GNC.L | We also opened a holding in UK convenience food manufacturer Greencore following the completion of its acquisition of peer Bakkavor. We believe the combined group should deliver improved margins and returns as material synergies are realised. |
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