Macroeconomic and geopolitical uncertainty have given UK small cap investors a rough run of late. The Numis Smaller Companies index (ex investment companies) has fallen by 10 per cent over the past six months, compared with a 3 per cent rise for the FTSE 100.
But such volatility means “the market is throwing up some really interesting entry points for businesses”, says Ken Wotton, managing director at Gresham House and head of the firm’s public equity investments division. “For most of the last few years, UK smaller companies have traded at a material discount to larger UK-listed companies, so I think we’re in an area which is structurally undervalued,” he says. He adds that high-quality businesses which are trading on a discount by virtue of the asset class in which they are categorised can present a good opportunity to make money.
Wotton joined Gresham House in late 2018, having spent a decade at private equity firm Livingbridge running its quoted markets division. He co-manages several portfolios, including the LF Gresham House UK Micro Cap Fund (GB00BV9FYS80), LF Gresham House UK Multi Cap Income Fund (GB00BYXVGS75) and the Aim-traded portfolios of the Baronsmead VCTs. He was also appointed lead fund manager of Strategic Equity Capital (SEC) in 2020, which has net assets of £194mn and recently survived a takeover bid by Odyssean Investment Trust (OIT).