UK smaller companies have been unloved for years, but the tide might be turning. In this interview with Scott McKenzie, co-manager of the WS Amati UK Listed Smaller Companies fund, the FundCalibre team discuss why the asset class has struggled, the early signs of improvement, and what could drive a long-term recovery. They explore volatility, valuations, the impact of government policies like the Mansion House Accord, and the outlook for AIM-listed stocks. With market sentiment shifting and opportunities re-emerging, now might be the time to revisit UK small-caps.
Why you should listen to the interview: If you’ve written off UK small-caps, think again. Scott highlights why the long-neglected sector may be on the verge of a comeback. With undervalued companies, signs of stabilising flows, and improving sentiment, it’s a timely look at where UK markets might head next. Sometimes, market turnarounds begin when few are paying attention — and this may just be one of those moments.
This interview was recorded on 19 June 2025. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
April was a wake up call for investors
“I think what happened in April is definitely a wake up call for investors in general, we’ve had a long period of US dominance in the global markets and that’s been the market to be in for a number of years now. And I think what the tariff uncertainty has brought is some reappraisal of that dominance — what they call US exceptionalism. It feels as though you have to at least challenge that. And I think therefore, relatively speaking, the UK markets are quite well placed and particularly small-cap.”
A turning point for UK small-caps
“I think there are some early signs of a turnaround and the recent events with the Liberation Day and the Trump tariffs, I think that possibly has marked a turning point for what we do in the UK. And I think there’s now potentially a better and wider audience for UK equities in general and for small-caps in particular. So we’ve now begun to see our own fund and small-caps in general perform somewhat better than they have done. Just it’s early days. We’ve only had, maybe three or four months of better numbers from the fund. But nonetheless, you know, there’s some early signs of better times ahead.”
Global interest in the UK
“There’s no immediate evidence yet of [retail inflows], but we are seeing, both anecdotally and in the markets, real evidence of US and European investors buying UK assets. That’s one of the reasons why we think the sentiment towards UK has improved because overseas asset allocators are now buying the UK. And we see that in things like the Bank of America survey, which for a long, long time has been extraordinarily negative about UK equities. And in March for the first time ever, it turned quite positive. So that tells me that there is a lot of global interest now in the UK stock market, even if our retail investors aren’t quite there yet. And the other part to that story, I think is the increase in takeover activity. We’ve seen a lot of takeover activity in recent months.”
Running towards AIM, not away from it
“So one thing that we haven’t done in the fund is run away from AIM. If anything, we’ve kind of run into the fire and we’ve increased our exposure. We currently have almost half of the fund in AIM listed securities. It’s always been a major part of what we do at Amati. And I think now is the time to actually embrace it rather than run for the exits.
“Interestingly enough, though, we have seen some fundraisings in AIM. We were fortunate enough within our fund to participate in the placing of Greatland Gold, which was kind of towards the end of last year. And that’s been a really, really successful investment for us. So we’ve ridden the crest of that wave and the gold price very well, and that company’s more than doubled in value since it raised its money in AIM last year. And more recently we’ve had a very significant fundraising from a company called Rosebank which just literally raised £1 billion in AIM.”
Taking an optimistic view
“We are definitely not satisfied with how things have gone for the fund in the last three or four years. But for the first time in a long time, we feel genuinely excited about the prospects for great returns across the portfolio. We remain massively committed to AIM. It’s 50% of the fund and we can see considerable upside in a lot of the holdings that we’re invested in there. So that’s something that we’re excited about in a broader sense.
“There’s also no shortage of new things and new ideas that we can bring into the fund. And that tells us that that the markets are still very keenly valued when you’ve got lots of new ideas, that’s generally a good sign.
“We’ve also built up our exposure to the defence sector, which in the current environment feels like a good place to be. We’re now seeing defence budgets being reallocated across Europe and indeed increased. So that’s a segment again where we see good prospects and we’re already seeing good returns.
“But over the piece, the combination of the valuation and the liquidity when it improves, we think means that we’re at the early stages of a really strong market cycle for UK small-cap. So definitely feeling much more positive than we have been for some time.”
Conclusion: After years of underperformance, UK smaller companies could finally be seeing light at the end of the tunnel. While challenges remain, especially around AIM and inflows, signs of recovery are growing stronger. Valuations remain historically low, providing compelling opportunities for long-term investors.
Main image: paul-marlow-46Tg56viOUg-unsplash
