Since the beginning of a small- and mid-cap sell-off in March, the FTSE 100 has held steady, returning 1.2%, while the FTSE 250 and Small Cap indices have both lost around 6%.

The average smaller companies trust fell 7% in the first half of the year following the correction, according to Numis, with several vehicles moving to the top of the broker’s ‘cheapest trusts list’.

Harry Nimmo’s Standard Life UK Smaller Companies trust lost 15% in share price terms in the first half of the year, and is now one of UK’s best value trusts, according to the list. It currently trades on a discount of 6.2%, compared to its one-year average of 0.8%.

Other trusts moving onto the list include Dunedin Smaller Companies (on a 12.1% discount compared to a one-year average of 5.5%) and J.P. Morgan US Smaller Companies (6.3% against an average of 1.4%).

Numis head of investment companies Charles Cades said discounts now match those seen on private equity and emerging markets trusts, both of which have suffered from years of negative sentiment.

“Since March, there has been a significant shift in sentiment away from smaller companies, and UK smaller companies funds suffered a net outflow of £90m in May, ending a run of 20 consecutive months of inflows totalling £1.8bn,” he said.
Oriel analyst Iain Scouller said value has returned to the sector, which has been overbought for the last year.

“While the divergence between the FTSE 100 and small and mid cap may continue for some time, the shake-out in the sector means that, in discount terms, a number of these trusts are now offering some value, with many at, or close to, their ‘cheapest’ levels in discount terms for the past year,” he said.

The firm has put ‘buy’ ratings on Henderson Smaller Companies (which has moved from a 9% discount in February to 15% today) and Aberforth Smaller Companies (3% to 11%), while pointing out BlackRock Smaller Companies has also seen its discount widen (from 7% to 14%).

Westhouse Securities has also noted the average discount on smaller companies trusts has doubled since March. It has put a ‘buy’ rating on small- and mid-cap trust JPM Mercantile. 

Large caps vs small and mid caps