Where to shop for ‘bargain’ UK small caps

The Autumn Declaration aimed to send a clear message that you should consider supporting Britain. Chancellor Jeremy Hunt said: ‘It’s time to get Sid invested again.’

Not only has the Chancellor revived the spirit of the iconic small shareholder who played a leading role in British Gas’s 1986 privatization campaign, he also introduced measures that could deliver an additional £75 billion a year in funding to reinvigorate Britain’s languishing markets. to breathe life into.

Yet some investors may still be unsure whether to become a Sid again, or join this club for the first time, and perhaps participate in the potential sale of the government’s remaining stake in NatWest.

Firstly, although the rules for individual savings accounts (Isa) will be simplified, the Chancellor has unfortunately failed to unveil a special tax incentive in the form of a ‘Brisa’ – a UK Isa.

We have also been assured for months that UK shares, especially small to medium sized ones, are a buy. According to Wall Street titan Morgan Stanley, they may be “the cheapest asset class in the world.”

Yet shares in these companies continued to struggle, with the result that UK small-cap companies are now historically cheap.

Darius McDermott of Fund Caliber notes: ‘As the Numis Schiller index shows, the price-to-earnings (PE) ratio of small-cap companies – a measure of value – is now thirteen times larger, up from an average of twenty. has been this cheap 4.87 percent of the time since 1987.’

Particularly hard hit are the young companies traded on the AIM (Alternative Investment Market). The FTSE AIM All-Share index has fallen 15 percent since January, beset by unfounded rumors about the withdrawal of the inheritance tax available on these shares if held for more than two years.

Intrigued by these stats, you may be looking to join the Sid club, but at some point you’ll only make a move if a rebound is on the way.

The Chancellor may be encouraging pension funds – which have left the UK markets – to make returns, but he has not required them to release a specific amount of cash. Moreover, their presence will not be felt immediately. But Richard Staveley, manager of Rockwood Strategic, a trust that specializes in smaller British companies, warns that it would be difficult to time such a maneuver profitably. If you’re ready to take a gamble, it may be better to look and buy at least over a three-year period before you see the light at the end of the tunnel.

Recent takeover activity suggests that professionals feel there could be an upturn.

Staveley said: “In recent months, four of the 20 companies we have taken into trust have been acquired. For example, Youngs is acquiring City Pubs, while Costar, the American property group, is acquiring the OnTheMarket portal, a truly British start-up.”

Other Americans are not waiting for a revival to happen. The mighty Mars confectionery conglomerate is gobbling up British sweets boutique maker Hotel Chocolat.

These purchases included a piece of Schroder UK Mid Cap.

This trust has interests in the electrical engineering group Spectris and Games Workshop, owner of the Warhammer game and model franchise, whose fans include singer Ed Sheeran.

Games Workshop shares may have risen 273 percent in the past five years, but it’s still likely that Wall Street would assign an even higher valuation to this company.

The Isa adjustments should allow some of Warhammer’s less affluent younger followers to hold ‘fractional’ shares in this and certain other companies.

At £107.9 each, shares in Games Workshop are somewhat unaffordable for entry-level Sids, so they will be able to own part of a share.

I think there are a lot more stock bargains available than during Black Friday sales.

I’m sticking to my UK small cap companies and trusts, and on my shopping list are Rockwood Strategic and a FTSE 100 name, Taylor Wimpey. The construction company’s prospects may appear bleak amid subdued housing demand. But it has plenty of cash and a large land bank.

McDermott’s fund picks are Montanaro UK Income and Marlborough UK Micro-Cap Growth. However, only Sids with strong nerves could take the plunge, because, as he puts it, “You have to close your eyes, close the drawer and wait.”