On The Money Is the tide starting to turn for UK smaller companies?
Mar 5, 2026
Richard Staveley, manager of Rockwood Strategic and specialist in UK smaller company investing, talks about why small caps lagged large caps and why the gap is narrowing. He discusses valuation contrasts with US markets and whether lower rates and policy shifts could rekindle investor interest. He also outlines activist strategies and real-world company interventions.
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Interest Rate Shift Hurt Small Caps More
- Rising interest rates from late 2022 to April 2023 shifted the market from growth to value, hurting UK smaller companies more than large caps.
- FTSE 100 benefited from banks and defence stocks which small caps lack, amplifying the performance gap.
Rate Cuts And Fiscal Clarity Are Reigniting Small Caps
- Falling interest rates since August 2024 have started to improve the outlook for growth and helped narrow the small/large performance gap.
- Richard cites expected further cuts and greater fiscal clarity after November's budget as catalysts for renewed investor interest in small caps.
UK Small Caps Still Significantly Cheaper Than US Stocks
- UK smaller companies remain cheaply valued versus US markets, with many Rockwood holdings trading below book and at far lower sales multiples than the S&P 500.
- Structural factors like global tracker funds skipping UK small caps have suppressed flows and valuations.