New research from investment holding company MBH Corporation has revealed that 85% of professional investors from the UK, US and Germany believe UK equities are undervalued.
The investors, who collectively manage over $300 billion, say one of the key reasons for optimism around UK equities is that the country has one of the best Covid-19 vaccination programmes in the world, and this is contributing to a faster recovery and greater economic growth than many other developed countries.
Over the next 12 months, 47% of the professional investors interviewed said they will increase their allocation to UK equities compared to just 5% who expect to reduce it. The corresponding figures for three years are 56% and 11% respectively.
MBH Corporation plc, a diversified investment holding company listed in the US and Germany, which acquires successful small businesses, says micro caps and small caps can be among the best performers as economies recover from a downturn. Its research reveals that 20% of the professional investors interviewed expect to increase their allocation to UK microcaps between now and 2023, compared to 8% who will reduce their exposure. The corresponding figures for small caps are 33% and 10% respectively.
MBH currently has 26 successful and profitable small businesses across multiple geographies and industries, and 20 of these are based in the UK.
Callum Laing, CEO MBH Corporation, explained: “UK equities took a hit after Brexit, and along with stock markets in general, they suffered during the early stages of the Coronavirus crisis. However, they have bounced back but our research shows that many professional investors still believe they are undervalued, and they are looking to increase their allocation here.”
Overall, professional investors are also positive towards UK smaller stocks, and this can partly be explained by the fact that micro and small caps can be nimbler and adapt better to changing circumstances than larger businesses, and they can also bounce back
MBH will continue its highly focused growth of well-established profitable small businesses across multiple geographies and industries. It targets companies carrying little to no debt, delivering around US$1m – US$10m EBITDA and are generally still run by their founders who become co-owners of MBH.
MBH’s sentiments are also echoed by fund management giant BlackRock: “The Brexit resolution is the removal of a huge cloud of uncertainty that has significantly impacted valuations across small and mid-cap companies, and so it would not surprise us at all to see more inflows into this part of the market,” it told clients recently. “Many small and medium-sized companies have performed well through this difficult period, reflecting the strength of their offering and the global universe they serve. This rising tide should lead to a re-rating in valuation for many of our holdings.”
“History has shown that crises accelerate industrial trends, market share shifts, and changes in consumer behaviour,” observed Dan Whitestone, manager of the BlackRock Throgmorton Trust. “We thought this would be the case with COVID-19, but we have still been surprised by the sheer speed and scale of the level of dispersion of financial performance that it has created across industries and companies.”