It’s certainly been a challenging year for UK domestic politics, but today’s trade deal with the European Union offers some solace and a clear message to global investors says Darius McDermott (pictured), managing director at FundCalibre.
In the following analysis, Darius tells us why he believes that this latest move shows that the UK is ready to be the grown-up in an uncertain world. He also shares some of his top fund tips in the small cap sector.
It’s been a challenging year for UK domestic politics, but today’s trade deal with the European Union offers some solace – and a clear message to global investors: the UK is ready to be the grown-up in an uncertain world.
The deal may only move the dial at the margin, but it is another momentum marker showing Prime Minister Kier Starmer is getting serious about making the UK investable again. Last week, the UK became the first country to secure a post-tariff deal with the US, and also saw the signing of the Mansion House Accord, which will have 17 of the UK’s largest pension schemes direct more capital into private British assets, such as venture capital and critical infrastructure.
While much still needs to be done to support our public markets, there is no doubt Starmer is putting his foot on the gas – and the timing couldn’t be better for UK equities:
- Over the past decade, 19 of the top 20 contributors to global equity returns were US companies, with TSMC the sole outlier.
- The Magnificent Seven alone have driven 50% of MSCI World gains over the last two years – 27% over the past decade.
These figures are a reminder of just how dependent most global portfolios have become on the continuation of US exceptionalism. With US President Donald Trump’s uncertain economic policy and consistent challenges to the rule of law, this dominance is now under threat.
More and more pension funds are questioning their US exposure, and we could therefore be on the brink of a cataclysmic shift in global markets. Few will exit the US entirely – nor should they – but people always underestimate the power of technical flows. If even a small slice of global pension money is reallocated into listed UK equities, it could have a tangible impact – especially for UK small caps, where even minor shifts in institutional flows have the potential to be transformational.
With every fresh initiative, Starmer is effectively putting up a sign that says: “Park your capital here.”
For UK small cap exposure, we recommend the following funds:
- WS Raynar UK Smaller Companies
- IFSL Marlborough UK Micro Cap Growth
- Liontrust UK Micro Cap
- WS Amati UK Listed Smaller Companies
