The UK small cap equity market remains one of the least expensive major markets in the world. UK small caps are trading at the bottom of their historical range and at a big discount to UK large caps; the market also looks less expensive compared to the US and European small cap equity markets.

UK small cap corporate management teams know a bargain when they see one and have been snapping up their own shares at attractive valuations, creating value for shareholders at the same time. The portfolio managers of the JPMorgan UK Small Cap Growth & Income plc (JUGI) note that share buyback announcements have become almost a daily occurrence and are outpacing buybacks in other regions.

Many companies are going further than buying back their own shares and are buying their competitors or complementary businesses. Merger activity remains robust and widespread across a diverse range of industries including financials, industrials, real estate, and travel and leisure. Importantly, the target companies are commanding healthy premiums, ranging from over 20% to around 75%.

Takeouts, graduations and trading activity

The JUGI portfolio has experienced a few changes over the past 12 months, due to a combination of mergers, companies leaving the index and decisions to buy or sell holdings. Alpha Group International*, a financial services company that manages corporate foreign exchange risk, was bought at a 50% premium by Corpay*. The company was a key position for years and was one of the top contributors to returns over the past 12 months ending 31 January 2026.

Another top holding, Lion Finance*, which is the leading banking franchise in Georgia, has also been a top contributor to returns in the last year. The company’s market capitalisation has grown large enough that it will graduate into the FTSE 100 at the end of March.

Additions to the portfolio span a wide range of industries. Galliford Try*, for example, is a construction company exposed to rising infrastructure spending, and Applied Nutrition is a nutrition supplements company with high margins and strong sales globally. Another addition is Currys*, the largest electrical retailer in the UK, which is benefiting from spending on computer equipment.

JUGI has also added a position in Quartix*, which provides hardware and software to track vehicles for small businesses. The portfolio managers have been monitoring the company since it exceeded GBP 70 million in market cap and initiated a position once the market cap reached GBP 100 million; investing in companies in the GBP 100 million to GBP 200 million range has often provided room for robust long-term growth and returns.

During the last 12 months the portfolio also exited a few positions, including Warpaint*, a cosmetics and personal care company that the portfolio managers have known since its initial public offering (IPO). The position detracted from the portfolio’s performance as the company missed its revenue target and the shares declined; the portfolio managers sold out of the position due to concerns about the outlook for UK and US consumers.

One of the largest detractors over the last 12 months has been Ashtead Technology*, whose shares derated after its IPO. In this case, JUGI is maintaining its large position given the company’s strong track record, generally in-line results, recent positive update and shift in its business to higher-margin opportunities.

Current positioning and outlook

Following the changes in the portfolio, Serco*, a business services company with roughly half of its work related to defence, is now the largest active position. While the share price has performed well, JUGI’s portfolio managers believe the company is still undervalued, leaving room for the shares to appreciate further.

The portfolio managers remain focused on finding and investing in high-quality UK small cap companies with businesses that can grow over the long term. These companies tend to be more insulated from the global macroeconomic environment, although the abrupt spike in energy prices and the potential for a resurgence in inflation could ripple across the entire UK equity market.

JUGI’s experienced portfolio managers have steered the portfolio through many types of investing environments and have earned a strong long-term track record, delivering excess returns and top-quartile annualised performance over three, five and 10 years.

*The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. The portfolio is actively managed. Holdings, sector weights, allocations and leverage, as applicable, are subject to change at the discretion of the investment manager without notice. Past performance is not a reliable indicator of current and future results.

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.

Investment Performance:

Past performance is not reliable indicator for current of future events.