Richard Bullas, portfolio manager of the Franklin UK Smaller Companies fund has said the outlook for UK small caps is being helped by investors perceiving the local market as a ‘safe haven’ for small caps generally – one of a number of reasons why he is positive on the asset class.
Recent volatility sparked by concerns over China may have hit the FTSE 100 index of blue chips, but further down the capitalisation spectrum small caps stocks have been “somewhat sheltered”. Volatility can also be seen as offering opportunity for investors, Bullas notes.
Companies with a focus on the UK economy also have enjoyed access to a relatively well performing economy. Bullas argues the fundamental economic backdrop for small caps remains good.
Smaller companies also do not look set to suffer any immediate sharp rise in interest rates, as expectations are that these remain deferred, and as such the monetary environment will continue to act to stimulate economic growth domestically.
In the short term, Bullas said that valuations of the smallest companies, less than £350m in market cap, remain attractive.