If the UK market has been unloved over the course of the past 18 months, then the smaller capitalised stocks have been near-vilified.

The FTSE AIM All-Share index peaked in September 2021 and since then has been on a downward trajectory, off 43% at the end of the most recent quarter. Inflows into UK market funds have been negative for 24 months and market liquidity is at all-time lows, but it is at times like these when one remembers the closing quote from the Batman film, The Dark Knight, which feels more prescient than ever: ‘The night is darkest just before the dawn, and I promise you the dawn is coming’. 

Underlying businesses in the portfolio are starting to show early rays of sunshine through the dark. Pub companies, Young’s and Fuller’s, announced a strong recovery in their spring results. We met with the management of both. They had been hammered on the back of COVID lockdowns and then last winter with the tube and rail strikes, which hit Fullers for £5m in lost revenues. They are starting to see office workers and tourists return, and even though food inflation remains high, both businesses are seeing increased revenue spend per head. Punters are heading to the pub, not just for a quick pint on the way home, but staying longer and more likely to have a house cocktail or a meal.  

Where we feel the near-future is shaping up well for domestic consumer facing businesses, it has been rather more challenging in the industrial space. Both Porvair and Judges Scientific released in-line results, but US based concrete screed manufacturer Somero Enterprises released a profit-warning statement highlighting a slow down in US non-residential construction on the back of rising uncertainty in construction due to elevated costs of borrowing. We still believe it is a high quality business, which has performed well and we added to the position.

In the technology space we continued to add to SaaS provider Bytes Technology and remote monitoring solutions (think ankle tags) business BIG Technologies. Both had good results, increasing revenue guidance and Bytes increasing their dividend. We also added to specialist property companies Primary Health Properties and Helical who have been pegged down along with the rest of the real estate sector on the back of rising interest rates. We believe that both these businesses are specialist and diversified enough to be the amongst the best performers when the tide turns. 

The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.

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