UK Smaller Companies & Mid-Cap

MPN

I currently hold Henderson Smaller Companies (HSL) and JPMorgan Mid Cap (JMF) in my ISA portfolio. I've been very pleased with both but now I'm considering selling because of the uncertainty of a no deal on Brexit. This would surely have a bad effect on UK Smaller and Mid Cap companies? Any views appreciated please.

Filo25

The issue is that a lot of Brexit risk is already built into the price of Equities and also the current Sterling Exchange rates.

If we end up with a true cliff edge hard Brexit then yes a fair few companies in that area will probably take a hit, the problem is if we end up with a better deal than the markets are currently pricing in then UK larger companies (with more overseas exposure) and any overseas equities you hold are likely to take a hit as Sterling rallies.

In short I wouldn't make Brexit a primary driver for any equity allocations, unless you think you have a much better idea than the market as to how Brexit will unfold.

Linton

UK Small Companies should only be a relatively small part of a portfolio and if you want to invest in Small Companies you should be invested across the world. So yes, BREXIT could be a disaster for UK small companies but that would be offset by the probable fall in the £ making the foreign investments more valuable. On the other hand UK SC could continue to provide good performance as the sector has done for the past 10 years. You dont know, that is why you should invest broadly and accept that at times some areas will perform particularly well and others will perform particulalrly badly.

JohnRo

Filo25 wrote: »

The issue is that a lot of Brexit risk is already built into the price of Equities..

I'm not so sure about that, no one yet knows what the outcome will be, either in tems of a final deal being struck or what effect that deal will have on the UK economy and it's tortuous trade deals going forward.

You could argue the balance of negativity and positivity has the market where it is currently but you can be sure of one thing, it'll start to move when the deal or lack thereof becomes clearer.

Filo25

JohnRo wrote: »

I'm not so sure about that, no one yet knows what the outcome will be, either in tems of a final deal being struck or what effect that deal will have on the UK economy and it's tortuous trade deals going forward.

You could argue the balance of negativity and positivity has the market where it is currently but you can be sure of one thing, it'll start to move when the deal or lack thereof becomes clearer.

I agree, but that is the point, unless any of us have a better guess than the market of the likely outcome, the current level fo risk is reflected in the markets.

If the outcome is better than expected then the UK small midsized sector may be the sector you would really want greater exposure to, and vice versa

JohnRo

It'll hinge on what the market decides will happen to GBP in relation to international currencies.

I doubt there are very many UK companies entirely insulated from the effects and costs of international trade.

aroominyork

Linton wrote: »

UK Small Companies should only be a relatively small part of a portfolio and if you want to invest in Small Companies you should be invested across the world.

Not necessarily and not necessarily.

Other threads have pointed out that over the long term UK small caps outperform large caps. I have about 35% of my UK equity in small caps and don't feel over-exposed.

Other threads have also discussed which countries are best for small caps; many people believe the UK, Europe and Japan are where you should focus your small cap investments. Others differ: Standard Life Global Smaller Companies, with 46% US, is quite fashionable at the moment.

StellaN

aroominyork wrote: »

Not necessarily and not necessarily.

Other threads have pointed out that over the long term UK small caps outperform large caps. I have about 35% of my UK equity in small caps and don't feel over-exposed.

Other threads have also discussed which countries are best for small caps; many people believe the UK, Europe and Japan are where you should focus your small cap investments. Others differ: Standard Life Global Smaller Companies, with 46% US, is quite fashionable at the moment.

I think Linton may be referring to UK Smaller Companies should only be a relatively small part of your overall portfolio, not just part of your UK equity allocation. My allocation is 5% UK Smaller and 5% UK Mid Cap but I also have 5% Japan and 5% US but about 10% for European Smaller Companies.