The UK small cap re-rating opportunity – VT Downing Small & Mid-Cap Income Fund

–News Direct–

Josh McCathie, lead fund manager of the VT Downing Small & Mid-Cap Income Fund, tells Proactive's Stephen Gunnion he is optimistic about current market conditions, particularly in the UK.

McCathie noted that challenges such as inflation and interest rates are subsiding, potentially shifting to support the market. He highlighted the significant opportunity in the UK's small and mid-cap sectors, citing that the FTSE 250 is trading at a 22% discount compared to its long-term average and at a steep discount relative to the FTSE 100—a scenario seen only twice in the past 20 years, historically followed by strong performance in small and mid-cap stocks.

McCathie acknowledged threats from geopolitical tensions but emphasized the greater potential returns in the small and mid-cap space, pointing to expected earnings growth and dividend returns. He differentiated the VT Downing Small & Mid Cap Income Fund by its exclusive focus on small and mid-cap stocks, contrasting with other funds that focus on larger caps. He also discussed the overlooked dividend potential in smaller companies, suggesting that despite being perceived as growth-focused, they offer substantial dividend opportunities.

Celebrating three years as the lead manager, McCathie reviewed the fund's performance, noting significant outperformance relative to other small-cap mandates and overall positive results despite some challenges in 2023. He advocated for investing in UK equity markets, citing the potential for strong returns and robust dividend yields as reasons for optimism.

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