The FTSE SmallCap Index extended its run of record closes on Monday, as investors bid up the prices of minerals, resources and energy companies among UK-listed minnows.
The latest milestone came on a day when the value of the pound ticked below $1.29, and in spite of uncertainty over the consequences of the UK vote to leave the EU that have prompted extensive action by the central bank to stimulate growth and inflation.
It highlights broader questions about the nature of the rally in UK markets since the June 23 referendum, with winners from the perceived effects of Brexit so far outweighing the losers.
The 5.8 per cent rise in the value of the index this year puts the performance of the FTSE’s basket of small capitalisation companies between that of the 11 per cent rise in the value of the benchmark FTSE 100, and the 3 per cent gain of the more domestic focused FTSE 250.
“Small-caps have rebounded in absolute terms, but they are still underperforming large-caps on the year,” said Mislav Matejka, equity strategist for JPMorgan Cazenove.
Advocating for the UK as an “accidental hero” in an international portfolio on Monday, he said the call to buy was best expressed through the larger companies with international operations which benefit from weakness of the pound and low bond yields. “Small-caps are still more domestic and more cyclical,” he said.
The record for the FTSE SmallCap may also highlight quirks of composition for an index which collects the 351st to 631st largest listed companies on the London Stock Exchange, rather than acting as a broad measure of investor sentiment towards small UK companies.
For instance, the index contains a large number of investment trusts. Exclude these and FTSE SmallCap investment return for the year so far, including dividends, drops from 7.6 per cent to a gain of 4.9 per cent, according to Bloomberg.
It includes a diverse spread of small companies, some of which have arrived after demotion from the larger capitalisation indices. The two best performing stocks in the FTSE SmallCap index this year are Ferrexpo and Lonmin, up 252 per cent and 186 per cent respectively, miners whose value collapsed last year due to concerns about tumbling commodity prices.
Trading is also very thin in some stocks: there are often days when less than £2m worth of shares changes hands in M&C Saatchi, a network of advertising agencies valued at £250m.
By comparison Foxtons, an estate agent group based in the capital, is of a similar size, but daily trading volumes regularly top £100m. The group was one of the largest gainers on Monday, the shares rising 5.3 per cent after analysts at Citigroup upgraded their recommendation from “neutral” to “buy”.
The value of the group has dropped more than two-thirds since early 2014. “Whilst we acknowledge concerns around the London property market, we highlight the 5.1 per cent dividend yield,” wrote analyst Christopher McVey.
