LIVE MARKETS-The case for Britain's small- and mid-caps
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THE CASE FOR BRITAIN'S SMALL- AND MID-CAPS
Britain's blue-chip FTSE 100 .FTSE has had a stellar start to the year, rising almost 8% to date, but Panmure Liberum believes small- and mid-cap (SMID) stocks offer a brighter outlook.
SMIDs have underperformed in the last couple of years but have still done well so far in 2026. The FTSE 250 .FTMC, an index of mid-cap stocks, is up 4.8% this year, while the FTSE Small Cap index .FTSC is up 5.7%.
SMIDs are cheaper than their larger counterparts but Panmure Liberum argues that valuations alone are not enough to trigger outperformance.
Instead they believe there are fundamental changes afoot that should be supportive.
The first is share buybacks.
"Given the low valuations of UK small- and mid-cap companies, investors have pushed businesses to buy back their shares to support valuations and provide additional liquidity in markets," Panmure Liberum research analyst Joachim Klement says.
The second is improving liquidity.
"Over the last two years, we have seen trading volume increase to about 5% for the FTSE small Cap and a large 12% for the FTSE 250," Klement notes.
"...this increase in liquidity improves ratings and attracts new investors who require more liquidity and see valuation improve."
The final change that should favour SMIDs is the macro picture.
"Accelerating GDP growth, declining inflation and lower Gilt yields all favour small cap outperformance over large caps," Klement says.
"While the past looks grim and the decline of UK small- and mid-caps has been the result of disinvestment from pension funds, insurance companies and retail investors alike as well as rising Gilt yields and low earnings growth, the future looks much brighter".
(Samuel Indyk)
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