The global sell-off in small company shares was made all the worse by The Muppet Show (Liz Truss and Kwasi Kwarteng), leading to a year where international investors were seemingly climbing over each other to exit their UK positions.

We were fortunate that our UK Smaller Companies Fund did not experience outflows and so we were able to take the opportunity of torrid markets to add to positions that we felt had been oversold. During the year we initiated a number of new positions for the Fund in addition to adding to existing positions. To highlight a few new names by sector:

• Healthcare: Ergomed (outsourcing services to pharmaceuticals)
• Consumer: Fuller’s (pubs), Games Workshop (Warhammer), Pets at Home
• Property: Helical (London offices), Primary Health Properties (UK healthcare facilities)
• Technology: Big Technologies (remote monitoring of individuals)

All of these are high quality names that strengthen the Fund and where we see valuation upside. These purchases were made from existing cash reserves and from exiting positions such as IntegraFin and Simulations Plus, where we felt the cash could be better put to work in the above names. We also saw top five holdings Brewin Dolphin and Ideagen acquired in 2022, providing large cash inflows.

It is easy to write off UK smaller companies (as many investors have) on the basis of country-specific risk, liquidity, interest rate concerns… the list goes on. While noting these concerns, we believe that there is still a place in client portfolios for a focused list of high quality smaller companies, offering above GDP growth. Patient investors will be rewarded for sticking with these businesses and we expect this to be reflected in strong returns over the long-term.

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.