It is generally appreciated that smaller companies offer active managers greater opportunities to outperform wider markets. This is due to the pricing inefficiencies in this area of the market, with fewer brokers covering the stocks and delivering less research to investors.
This has been demonstrated over the past ten years, with the Morningstar UK Small Cap sector producing an average NAV return of 173.4% to 2 February 2021, compared to a return of 115.2% from the Numis Small Cap including AIM excluding Investment Companies index. Yet recently, while the small companies sector has produced good absolute returns, it has lagged a strong rally in the Numis index. This has coincided with a strong period of performance in mining companies which, we think, is no coincidence. Merchants Trust turns defensive to protect dividend yield record We believe unde...
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