Despite media headlines painting a picture of perpetual doom and gloom hanging over the country, the UK has delivered four consecutive years of GDP growth above market expectations. The resilience of the economy in the face of numerous challenges has been nothing short of remarkable, perhaps indicating strong foundations that could provide a springboard for a long-awaited revival.
Why are we turning positive on UK smaller companies? Well, first off we are encouraged by data from Panmure Liberum and the Bank of England showing that the UK household sector has shifted from a £750bn net debt position in 2008 to a net cash position at the end of 2025*. Any uptick in consumer confidence, or further reductions in interest rates, could see some of this cash being put to work in the economy. We have also observed an increase in workforce participation rates, rising from 63% to 64%* in recent years and now running above market forecasts, which could present an upside risk to growth projections.
*Data source: Panmure Liberum and the Bank of England, date 30 January 2026.
I, along with many other UK fund managers, have been highlighting the attractive valuation of the UK equity market for the best part of a decade. However, as we head into 2026, there is a clear discrepancy not only between UK large caps and UK small caps, but also between the UK and the rest of the world. UK large caps remain attractively valued, but UK small cap equities are currently trading towards the bottom of their historical valuation range and, unusually, at a discount to large caps—despite their higher future growth potential and earnings power.
Private equity and corporates across the globe are taking advantage of the opportunity to purchase world-class companies at attractive prices. This has led to a surge in M&A activity in the UK market in recent years, with no sign of it abating as we begin 2026.
While small caps have underperformed their large-cap counterparts in recent years, there is a very clear and sizeable trend of outperformance over the long term. The UK small cap universe is incredibly diverse, with over 50%1 of revenue coming from overseas markets and spanning a wide range of industries. Many of these companies are market leaders in niche areas or are driving technological and business model advancements. This diversity means investors can access businesses with unique growth drivers, resilient earnings profiles, and the ability to adapt quickly to changing market conditions—so, in some ways, it doesn’t matter what the next UK GDP or consumer confidence print is.
With the vast resources at our disposal at J.P. Morgan, along with decades of experience investing in this part of the market, we are well placed to take advantage of the exciting opportunities available in the UK small cap market. With less analyst coverage and a large universe of stocks, this is an area of significant potential alpha generation. This is reflected in our track record: Over the 10-year period to the end of 2025, the trust has returned 120% 2, compared to the index return of 60%.
Past performance is not reliable indicator for current of future events.
1Source Factsheet
2Performance Table
Summary Risk Indicator
The risk indicator assumes you keep the product for 5 year(s). The risk of the product may be significantly higher if held for less than the recommended holding period.
Investment objective
The Company's objective is to achieve capital growth from UK listed smaller companies and a rising share price over the longer term by taking carefully controlled risks. The Company has the ability to use borrowing to gear the portfolio within the range of 10% net cash to 15% geared in normal market conditions. Gearing may magnify gains or losses experienced by the Company. The Company makes quarterly distributions, that are set at the beginning of each financial year. On aggregate, the intention is to pay dividends totalling at least 4% of the NAV as at the end of the preceding financial year.
Risk profile
- External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds and income could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions.
- This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down.
- This Company invests in smaller companies which may increase its risk profile.
- The share price may trade at a discount to the Net Asset Value of the Company.
- .The single market in which the Company primarily invests, in this case the UK, may be subject to particular political and economic risks and, as a result, the Company may be more volatile than more broadly diversified Company's.
- Companies listed on AIM tend to be smaller and early stage companies and may carry greater risks than an investment in a Company with a full listing on the London Stock Exchange.