The UK’s small cap is one of the most undervalued segments on the UK stock market. Our analysts estimate that these stocks trade at a significant discount to fair value well below the historic average. This provides a potentially attractive entry point. Globally, it appears to be appreciated in terms of growth, especially in comparison to us, especially in ours. Here we look at seven active investment strategies in the EAA UK Small-Cap Equity MorningStar category and highlight the four most rated funds in this category.
Relaxing financial conditions could result in a small cap increase, historically outweighing larger caps after speed reductions. Furthermore, rebalancing stock allocations can benefit both large and small businesses. By 2030, Mansion House Accord could pour £25 billion into UK assets, including AIM stock, to provide substantial policy support.
Small businesses offer great growth opportunities and tend to outperform larger counterparts in the long run. The ability to leverage new themes and entrepreneurial spirits will make them a fertile position for active managers. The vast number of small businesses creates a wide universe that is often overlooked by analysts, resulting in a less efficient market. This inefficiency allows active managers to add important alphas over the long term.
Investments in small businesses in the UK in particular provide diversification from the internationally focused large caps, providing a more domestically-driven revenue stream. Opportunities go beyond defensive consumer names and large energy players, with increasing representation in technology, consumer cycles and industry. Large UK caps tend to be value-oriented, but SMEs offer growth exposure and diversify their return profiles.
Public market investors are moving away from small and medium-sized UK businesses, but the structural discounts offered are not noticed. With corporate and private equity buyers intervening, M&A activity has increased significantly over the past few years. The new list is rare.
As long as the rating remains at the current level, M&A activity will likely accelerate. Private equity companies have enough capital to deploy, and UK companies seem to be an easy target.
The UK’s small space is narrowing
Continuing stress from outflows in the sector has significantly reduced the size of the average fund, placing commercial viability under pressure to operate UK small funds.
Since 2023, there have been departures from categories with prominent asset managers such as Aviva, Baillie Gifford and 91 closing funds. In fact, the number of open-ended funds in the category has been at its lowest since 1997.
Small UK managers typically invest more cap spectra than their European and US peers. This approach provides diversification and potential alpha, as information tends to be less asymmetry under the cap scale.
As of April 2025, our Manager Research Team covers seven active investment strategies in the EAA UK Small-Cap Equity MorningStar category. Our coverage spans a variety of investment styles and shows significant variation in the convictions of analysts on people and the pillars of the process.
Top rated UK Small Cap Fund
Artemis UK Small and Medium Enterprises
Mark Niznik has managed the fund since 2007 and was the sole charge in 2011. He appointed Will Tamworth as an analyst in 2015 and was promoted to Commanor in 2016. Further investing in the cap spectrum will utilize qualitative and basic analyses to reveal valuable opportunities. Despite the lack of reliance on ratings in the 2020s, their valuation-oriented approach continues to be committed to their strategy, which has seen a strong recovery.
WS Amati UK lists small businesses
Dr. Paul Jordan has been leading this strategy since 2000. He is one of the longest decorated managers in the sector supported by 30-year UK equity veteran Scott Mackenzie. A bottom-up, team-based approach is looking for a company with a structural growth driver or a competitive edge. Despite its strong historic performance at the down market, it has been challenging in recent years. The issues with drawdowns, AIM allocations and inventory selection in 2022 are sacrificing performance. But we are confident in the team’s long-term Alpha potential.
Abrdn ukSmall and Medium Enterprises
The Abrdn UK Small Companies Fund remains a solid choice with a strong legacy. Abby Glenny replaced veteran Harry Nemo in 2022 and is supported by Deputy Director Amanda Yeman. They employ a proven UK small-cap strategy focusing on growth, quality and revenue momentum. Despite recent market struggles and outflows, the portfolio offers an attractive growth outlook supported by healthy dividend yields.
WS Gresham HouseUK Small Businesses
The UK Small Fund, launched in 2019, is led by experienced lead manager Ken Wotton and Commanager Kathy Helihee. They employ private equity entities to invest in small or mid-caps in the UK. An important part of the appeal lies in quality and assessment, sector expertise, and rigorous approaches to effective use of the wide and established network of experts that they differentiate. This process has helped investors in recent years, with funds offering attractive returns with lower realisation volatility than some of their peers.
This article was retrieved from British small cap landscape Reports from May 2025 and written by Henry Inse and Daniel Haydon.
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