The fund manager featured in this article has “a demonstrable track record of capitalising on the overlooked nature of small caps to deliver excellent relative performance over the years” says Juliet Schooling Latter, Research Director at FundCalibre, in her latest fund review.
Resiliency is the word that comes to mind when I think of UK smaller companies. Battered, bruised, beaten, they always seem to pass the test with flying colours, but it is hard to keep making the same claims for a sector that has been out of favour for a decade now.
Spare a thought for those burgeoning businesses that have tried to thrive in that environment, Brexit, Covid, political turmoil and rising interest rates have all hit hard on flows.
The past couple of years have been particularly challenging as UK large-caps, buoyed from performance from the likes of financials and commodities – have produced strong returns.
Over the past decade, the total funds under management held in the IA UK Smaller Companies sector has fallen by more than a third (£11.9bn to £7.6bn)*, a reflection of the challenges around sentiment and flows.
However, we have always been believers in small-caps given their ability to outperform their larger peers over the longer term.
Figures from Fidelity show that if you had invested £1,000 in UK small-caps on New Year’s Eve 1999, and reinvested the dividends, you would now be sitting on £6,111 in 2025**.
Neither the FTSE 100 nor a world tracker fund would have beaten those returns. The Deutsche Numis Smaller Companies Index (excluding investment trusts) has produced an annualised return of 9% between 1955 and 2024, beating the FTSE 100, US and global equities, house prices, long gilts and treasury bills**.
To us it is now a case of patience. The P/E on UK smaller companies is currently trading at around a 20-30% discount to global equities. It’s also the land of the stock picker, given the increased dispersion in returns.
This bring us to Raynar Portfolio Management, a boutique business founded in 2020 which specialises in UK smaller companies.
Philip Rodrigs is the lead portfolio manager of the WS Raynar UK Smaller Companies fund, as well as the founder of Raynar.
He is a familiar name to us at FundCalibre given his incredibly successful performance in the same space at both Investec and River & Mercantile.
Launched in July 2024, the WS Raynar UK Smaller Companies fund is a bottom-up portfolio of 70-90 names, with the investment philosophy built around five key pillars.
These include targeting companies with faster than average sales and margin growth, the latter includes companies that can grow margins through improving economies of scale.
Preference is also given to companies that can deploy cash in an accretive fashion. Phil and the team also seek companies with a price that trades materially below intrinsic value (the greater the potential for a re-rating as the illiquidity risk premium ebbs).
The final pillar is sentiment trends, this is where Phil and the team will aim to capture upside as company visibility grows and investor attention increases.
The investable universe consists of around 400 UK smaller company stocks. At initiation, companies must have a market cap greater than £100m.
The team then undertake initial evaluation on this list, looking for companies that can deliver substantial shareholder value creation.
This is generally signified by having a leading market position, clear business strategy and a strong management team.
If a company passes those criteria it is moved onto deeper analysis where they look for a share price that is in disconnect with perceived intrinsic value.
They model around 100 companies and search for cases where the earnings have been under forecasted. Interestingly, they favour firms that may have been poorly managed in the past, as this offers recovery potential, often identified through the numerous company meetings they hold each year.
One of their key differentiators is their willingness to act quickly after a positive meeting. While many fund managers wait several months, Phil prefers to move fast, arguing that delay can invalidate previous analysis.
The top ten holdings are incredibly diversified with the likes of Saga and Concurrent Technology joined by the likes of lime and minerals group SigmaRoc and Atalaya Copper Mining***.
The fund is also well diversified from a sector perspective.
Performance has been promising since launch, retuning over 20% compared with less than 4% on average for its peers in the IA UK Smaller Companies sector****.
I’ve said it already, but this all comes back to patience. UK small-caps have been in the doldrums for a decade for several reasons.
You can’t wait for a catalyst for change (chances are you won’t see it when it comes) but history suggest you ignore this market at your peril and, at its current valuation, any change in sentiment could result in a rapid re-rating.
If this is the case, then Phil has consistently proven himself to be one of the best UK small-cap managers around. He has a demonstrable track record of capitalising on the overlooked nature of small caps to deliver excellent relative performance over the years.
Although it is still early days for this fund, we see no reason why this strong performance cannot continue with several positive indicators already.
*Source: IA full figures, January 2016 and January 2026
**Source: Fidelity Investments, 23 June 2025
***Source: fund factsheet, 31 January 2026
****Source: FE Analytics, total returns in pounds sterling, 1 July 2024 to 6 March 2026
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet’s views are her own and do not constitute financial advice.
Main image: alev-takil-7ojyp-IXW7w-unsplash
