Takeovers are part of the problem. According to investment bank Peel Hunt, 30 bids valued at over £100m have already been announced this year, with an equity value of £25bn. And the companies that are being snapped off the public market are not being replaced by new ones: there has been just one IPO since January with a market capitalisation of over £100m.4
On the one hand, this suggests there are plenty of bargains up for grabs. However, investors are fearful of a vicious cycle, in which companies go elsewhere and capital follows suit.
How to invest in small caps
The small cap universe can feel like an unfamiliar place. However, there are several active and passive funds in Fidelity’s Select 50 that focus on this part of the market.
For those wanting to invest in small companies from around the world in a fuss-free way, the Vanguard Global Small-Cap Index Fund is an attractive option. This fund is diversified, with around 4,000 holdings from developed markets, and well-priced, with an ongoing charge of just 0.3%.
Other funds have a tighter focus. The Brown Advisory US Smaller Companies Fund, for example – which featured in investment director Tom Stevenson’s fund picks for 2025 – is an unusual play on the US market. The experienced management team favours small, domestically focused American companies, as opposed to the tech mega-stars – although they are still very large by British standards. Meanwhile, the Barings Europe Select Trust invests in small and mid-sized European businesses, excluding those listed in the UK.
It is also possible to home in on the UK market. Fidelity Special Situations is not restricted in terms of size and invests in plenty of FTSE 100 names. However, its value-focus means there are also smaller players in the midst.
|
(%) As at 31 May |
2020-2021 | 2021-2022 | 2022-2023 | 2023-2024 | 2024-2025 |
|---|---|---|---|---|---|
| FTSE 100 | 19.5 | 12.4 | 1.7 | 15.6 | 10.1 |
| MSCI World | 41.3 | -4.4 | 2.6 | 25.5 | 14.2 |
| MSCI UK Small Caps | 37.4 | -13.4 | -7.4 | 16.3 | 7.2 |
Past performance is not a reliable indicator of future returns
Source: Refinitiv, total returns from 31.5.20 to 31.5.25. Excludes initial charge.
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Source:
1 Morningstar UK Small-Cap Landscape, May 2025
2 Deutsche Numis Indices 2025 Annual Review, 16 January 2025
3 Quoted Companies Alliance, 4 June 2025
4 Peel Hunt, 9 June 2025
