A recent market screen that we ran through Quest (an analytical tool that we subscribe to) showed that the current market shift that we have seen worldwide away from quality growth investing in favour of the so-called value and growth styles has been more acute in UK smaller company markets than almost anywhere else. We have certainly felt this for our UK smaller company investments, where our focus on smaller but fundamentally robust and growing businesses has yielded negative returns of late.

Looking through our top holdings, we remain confident in the outlook for these companies and, in some cases, are astounded that the market continues to rate them as lowly. Private equity will be watching with interest... 

Starting on a positive note, our top two positions, Diploma and Porvair both had a strong 2025 and are now (deservedly) trading at record levels. Diploma, the acquirer of niche distribution businesses, are having a particularly successful time with their sales into the booming US data centre market, while Porvair, who manufacture and sell industrial filters used on everything from air conditioning units to nuclear power plants, recently reported that their results (due next month) will be ahead of expectations and an interesting new acquisition in Germany.

We trimmed our position in our third largest holding, Lloyd’s insurer Beazley, early in the quarter and this proved timely given that shares have since sold off on reports of a moderating insurance cycle. Beazley are one of the best in the business at negotiating the inevitable peaks and troughs of their markets and we will likely look to add to our position again once we see evidence of premiums stabilising.

Shares in technology stocks Craneware and Raspberry Pi were down over the period as any tech names not seen as direct beneficiaries of the “AI Revolution” are being given the cold shoulder. We think this is jumping to conclusions – for example, Craneware are a crucial cog in the mechanism whereby hospitals bill their customers. The idea that a given hospital is about to take the risk of scrapping this Craneware software for a free AI-based substitute does not stack up for us. We will monitor the situation closely but strongly suspect that Craneware will prove their doubters wrong. Big Yellow Group shares also came under pressure after Blackstone’s bid for the self-storage leader fell-through. We are confident that Big Yellow remains undervalued despite Blackstone not managing to get a deal over the line.