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19/4/2024
5
min read

You haven't missed it yet! The UK small cap re-rating opportunity

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“People tend to think large-cap offers income and small-cap offers growth, which by and large is correct, but what is often overlooked is that there is a huge amount of dividend potential at the smaller end of the market” - Josh McCathie.  

Josh McCathie, manager of the VT Downing Small & Mid-Cap Income Fund, highlights encouraging prospects amid improving market sentiment in a recent interview with Proactive’s Stephen Gunnion.  

Optimistic outlook for UK equities? 

Josh is optimistic about current market conditions, particularly in the UK, noting that challenges such as inflation and interest rates are subsiding, potentially shifting to support the market.  

He points to the significant opportunity in the UK's small and mid-cap sectors, citing that the FTSE 250 is trading at a 22% discount compared to its long-term average and at a steep discount relative to the FTSE 100—a scenario seen only twice in the past 20 years, historically followed by strong performance in small and mid-cap stocks.  

While he acknowledges threats from geopolitical tensions, he emphasised the greater potential returns in the small and mid-cap space, pointing to expected earnings growth and dividend returns. 

Small and mid-cap focus – a key differentiator? 

Josh differentiates the VT Downing Small & Mid Cap Income Fund by its exclusive focus on small and mid-cap stocks, contrasting with other funds that focus on larger caps. He also discusses the overlooked dividend potential in smaller companies, suggesting that despite being perceived as growth-focused, they offer substantial dividend opportunities.  

A three-year celebration 

Celebrating three years as the lead manager, Josh summarises the fund's performance, noting significant outperformance relative to other small-cap mandates and overall positive results despite some challenges in 2023. He advocates for investing in UK equity markets, citing the potential for strong returns and robust dividend yields as reasons for optimism. 

Watch the interview here: 

The video was originally published on Proactive Investor's website here.

Find out more:

Risk warnings: Please note that past performance is not a reliable indicator of future results. Capital is at risk. Investments and the income derived from them can fall as well as rise and investors may not get back the full amount invested. Investments in our funds should be held for the long-term and are higher risk compared to investments solely in larger, more established companies. Opinions expressed represent the views of the fund manager at the time of publication, are subject to change, and should not be interpreted as investment advice. 

Important notice: This content is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. This content contains information that is believed to be accurate at the time of publication but is subject to change without notice. Whilst care has been taken in compiling this content, no representation or warranty, express or implied, is made by Downing LLP as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. Downing does not offer investment or tax advice or make recommendations regarding investments. Downing is a trading name of Downing LLP. Downing LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 545025). Registered in England and Wales (No. OC341575). Registered Office: 6th Floor, St Magnus House, 3 Lower Thames Street, London EC3R 6HD. 

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