Len Shackleton’s Clown Prince of Soccer, the first autobiography by a professional footballer, was originally published 70 years ago. It is still best remembered for a chapter entitled ‘The average director’s knowledge of football’, which famously consisted of a blank page.
In the highly improbable event that I should ever write a book about my own career, I would be sorely tempted to pen a chapter entitled ‘The average politician’s knowledge of UK smaller companies’. This would very likely draw on Len’s strikingly laconic style.
Many of the most exciting and promising businesses in Britain can be found at the lower end of the market-capitalisation spectrum. In my view, they merit a place at the heart of any pro-growth agenda – especially with the long term in mind.
Yet I struggle to recall when a top-level political figure last said or did anything that might genuinely encourage investment in these businesses. Frankly, it seems to me that a policy of discouragement has been the go-to modus operandi for several years.
Amid this conspicuous absence of profile-raising and support, investors could be forgiven for looking elsewhere – and this, of course, is precisely what many have done. UK smaller companies have been relatively unloved for some time.
This status may now be more unwarranted than ever. Here are five reasons why investors might wish to give more thought to this supposedly unfashionable corner of the market in the face of continued macroeconomic volatility and geopolitical uncertainty.
The end of US exceptionalism
Many investors, not least those with a preference for passively managed funds, have relied heavily on US equities in recent years. This has generally proved a useful approach, with technology titans in particular driving performance.
Yet the case for looking further afield has become significantly stronger during the past 18 months or so. Tariff turmoil, dollar weakness, the conflict in Iran and doubts over the sustainability of the boom in artificial intelligence have steered attention away from the US and its mega-cap/large-cap businesses.
In 2025, overall, UK equities outshone their US counterparts, with the blue-chip FTSE 100 leading the way. This further encouraged a wider rotation away from the world’s biggest economy.
The importance of value
The move away from both the US and larger companies has gone hand in hand with a shift from growth to value. Investors are now paying more attention to businesses whose low earnings multiples could indicate underappreciated long-term potential.
The value available in the UK smaller companies arena is arguably unrivalled. Despite being at the forefront of fields including aerospace, chemicals, construction, defence, energy, engineering, finance, healthcare, infrastructure, life sciences and medicine, many businesses remain modestly priced – often remarkably so.
Warren Buffett once asked Berkshire Hathaway’s shareholders if they would prefer hamburgers to be cheap or expensive. Logically, he said, they should favour the former – and they should apply the same thinking to stocks.
The economy is not the stock market
The current chancellor appears to divide her time between claiming the UK economy in is in dire straits and declaring it on the road to recovery. Since the first relies on a blame game and the second tends to be met with incredulity, neither spiel inspires confidence.
Yet these pronouncements might not be a great basis for investment decisions anyway. Context is important, but its impacts are rarely uniform. In my experience, an individual company’s unique attributes usually count for much more than the broader economic backdrop.
This is why the funds I co-manage depend on in-depth research and direct engagement. Both can play an enormous role in weighing up the pros and cons of small-cap, micro-cap and nano-cap businesses.
The lessons of history
As everyone in our industry knows, past performance should not be treated as a guide to future returns. Nonetheless, reflecting a well-worn axiom, there is ample evidence to indicate that history, while it might not repeat, frequently rhymes.
With this notion in mind, it may be imprudent to ignore small-caps’ proven ability to outperform over time. It is true that large-caps have held sway of late, but smaller companies have the edge over the long run.
By way of illustration, consider Deutsche Numis data stretching back to 1955 – the year Clown Prince of Soccer hit the shelves, coincidentally enough. It shows UK small-caps outstripped not only the FTSE 100 but US equities and treasuries over the course of the ensuing 70 years.
Political apathy is neither here nor there
Discussing politics is far from the healthiest of pursuits in these polarised times. Yet perhaps one thing many people can agree on is that it is increasingly hard to take seriously anything most politicians say or do.
A positive corollary of this sorry state of affairs is that investors may (by now) be gloriously inured to the latest whim or wheeze from Westminster. Ideally, they will seek appropriate wisdom and insight elsewhere.
The ruling class’s comprehension of, and interest in, UK smaller companies might amount to precious little, if not a blank page. But that does not prevent these businesses – and the investors who back them – from writing their own success stories.
Eustace Santa Barbara is co-manager of the IFSL Marlborough Special Situations, UK Micro-Cap Growth and Nano-Cap Growth Funds.