Miton UK MicroCap Trust plc (LON:MINI) has announced its Factsheet for the month ended 31 December 2023.
Manager commentary
The ‘small company (small-cap) effect’ identifies that over the longer term the return of individual company shares are typically inversely related to their size. But during 2023, return has been dominated by the appreciation of the largest companies known as mega-caps. The seven technology mega-caps in the US for example, have on average more than doubled over 2023. Meanwhile, UK small-caps listed on the Alternative Investment Market (AIM exchange) on average fell modestly.
During the final quarter of 2023, the companies whose share prices rose started to include the medium (mid) sized companies. Bond prices also improved markedly as investors anticipated interest rate cuts in 2024.
At this stage however, the small-cap trend hasn’t worked all the way down into UK-quoted genuine small and micro-caps. The final quarter may have been the best of the four for companies listed on the AIM exchange, but often the share price increases only made up for when these had been weak earlier in the year.
If anything, economic conditions are changing from the period of globalisation. With interest rates above inflation for example, global growth often suffers a pronounced setback. At such times, large companies with their major market positions can really struggle, as the large can’t easily make up for a demand
shortfall by expanding rapidly enough in other areas. In contrast, small-caps, with their greater agility, can sometimes make up for a setback by expanding
elsewhere.
Thus, if the current economic and geopolitical trends continue, they favour the UK stock market because it is dominated by cash generative companies that tend to be somewhat resilient when financial conditions are tough. During the persistent inflationary pressures and recessions between 1965 and 1985 for example, we note that the UK stock market greatly outperformed the US stock market. Alongside, the best performing part of one of the best performing global stock markets were UK microcaps!
Gervais Williams & Martin Turner
31.12.2023
Miton UK MicroCap Trust (LON:MINI) intends to invest primarily in the smallest companies, measured by their market capitalisation and quoted or traded on an exchange in the United Kingdom.
