Catalysts for future UK mid-cap growth
Looking ahead, several catalysts point towards a resurgence in mid-cap performance. Early indicators of economic improvement, including rising wages and falling inflation, bode well for consumer spending. Moreover, optimism surrounding potential interest rate cuts and positive manufacturing and services data signal a favourable environment for mid-cap companies to thrive.
Historically, mid-caps have outperformed the broader market following interest-rate cuts, paving the way for sustained growth over several years. As economic momentum gathers pace, mid-cap stocks are poised to reclaim their position as performance leaders.
Exhibit 3: Mid-cap Outperformance After First UK Interest Rate Cut
Source: Bloomberg, 1 April 2024. Time period: 1990 – 2023. Past performance is not an indicator or a guarantee of future results.
Conclusion: Unleashing UK mid-cap potential
In conclusion, Martin Currie believes that the stage is set for mid-cap stocks to shine once again. With a supportive economic backdrop, potential interest-rate cuts, and resilient corporate fundamentals, UK mid-cap stocks are well positioned for meaningful growth. By carefully navigating short-term market fluctuations and capitalising on attractive valuations, investors can unlock the full potential of mid-cap investing.
Learn more about our reasons to believe in UK equities
Contributor: Richard Bullas, Co-Head, UK Equities (Small & Mid Cap), Martin Currie
1 Source: Berenberg, as at 1 April 2024
2 Source: Berenberg, as at 1 April 2024
Index Definitions
- The Deutsche Numis Large Cap index was launched in 2020 and targets the top 80% of the UK main list by value. It has a lower, but no upper size limit.
- The Deutsche Numis All Share index was launched in 2021. It contains all fully listed stocks plus all stocks listed on AIM. It therefore includes all the constituents of the DNSCI, Mid Cap and Large Cap as well as all the constituents of the Alternative Markets index.
- The Deutsche Numis Mid Cap index was launched in 2014 and targets the bottom 20% of the UK main market but excludes the smallest 5%. By design it covers 15% of the UK main list by value. The largest companies of the DNSCI are also constituents of the Mid Cap as the indices overlap.
- The Deutsche Numis Smaller Companies index or DNSCI targets the bottom 10% of the main UK market by value. It was launched in 1987 and has a history dating back to 1955.
- The DNSC 1000 index targets the bottom 2% of the main UK market (XIC) by value. Apart from a lower size cut-off, in all other respects its construction and composition are the same as the DNSCI.
WHAT ARE THE RISKS?
All investments involve risk, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future results.
Equity securities are subject to price fluctuation and possible loss of principal.
Active management does not ensure gains or protect against market declines.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility."
Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks.
Investing in a fund in a specific country or region may experience greater volatility than a fund that is more broadly diversified geographically.
IMPORTANT INFORMATION
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.
The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realised. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.
