The most popular UK small caps among investment trust managers

UK small caps are a hot pick among many stock market experts.

Many of the most popular stocks tend to be large caps, but there is a strong case to be made for the higher growth potential of smaller companies.

UK smaller companies have been labelled the most unloved stocks in the world. But Annabel Brodie-Smith, communications director of the Association of Investment Companies (AIC) argues that this is partly down to a lack of understanding.

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“Smaller companies are far less researched than large caps,” she says. “Investment trust managers are well placed to spot future winners. They spend their days scrutinising the business and its competitors in addition to meeting the management face-to-face and asking questions before they commit any money.”

The AIC has compiled research on the most popular companies among 22 investment trusts it represents that specialise in UK small caps.

The results show that four companies in particular stand out among UK small cap investment trust managers. Three of these are selected by a large number of trusts, with the fourth demonstrating the highest amount of investment value of assets held by UK small cap investment trusts.

What are the most popular UK small caps?

Among investment trusts that focus on UK small caps, here are the 14 most popular holdings.

^{Source: theaic.co.uk / Morningstar (based on latest available portfolio information as at 09/05/25). Shows all companies held by at least six trusts in the AIC UK Smaller Companies sector.}

The three most popular in terms of the number of trusts that hold them are XP Power, 4imprint Group and Alpha Group International.

4imprint (LON:FOUR) was founded in the US but is now headquartered in London. A FTSE 250 constituent, it has operations in Canada and Ireland as well as the UK and US. It is a direct marketer of promotional merchandise, “the market leader in promotional gifting in the USA” in the words of Georgina Brittain, co-manager of JPMorgan UK Small Cap Growth & Income (LON:JUGI).

“Currently buffeted by concerns over the US economic environment and the potential tariff impacts, we expect 4imprint to prove itself a long-term winner, as it has in the past,” Brittain adds.

As of 31 March, Alpha Group (LON:ALPH) was JUGI's fifth-largest holding, with 3.09% of the portfolio. It describes itself as "both fintech and consultancy", providing solutions across FX risk management, global accounts, mass payments and fund finance.

XP Power (LON:XPP) builds and distributes power supplies and converters for businesses in the healthcare, semiconductor and industrial technology markets.

Indriatti van Hien, co-manager of The Henderson Smaller Companies Investment Trust (LON:HSL), likes the guaranteed revenue streams the company gets when it signs up new clients.

“Once they receive product approval from clients, there is an annuity-like revenue stream for the lifetime of the customer’s equipment, which is typically five to seven years,” she says.

“Their equipment is incorporated into a well-diversified range of products, including surgical robots, advanced semiconductor fabrication technology and analytical test instruments, all of which are sectors with long-term growth prospects,” van Hien adds.

UK small cap investment trusts’ favourite stock by asset value

While those three companies are held by the highest number of trusts, they don’t have the highest net value of assets held by UK small cap investment trusts.

That accolade goes to XPS Pension Group (LON:XPS). Though only held by six of the trusts in the AIC’s sample of 22, those six held a combined £93.06 million in assets. While the eight trusts holding XP Power had an average stake of £7.5 million, those holding XPS Pension had an average stake nearly twice as large, at £15.5 million.

XPS Pension is a pensions consultant. “We believe that the company is well positioned to benefit from regulatory changes necessitating increased demand for advice from pension schemes,” says Brittain, one of the managers backing the company.

“In addition, XPS is benefitting from the huge growth in the pension risk transfer market, as a very large number of defined benefit pension schemes that are in surplus look to transfer the risk to insurers,” Brittain adds. She also highlights that its recent acquisition of Polaris Actuaries and Consultants gives it a roadmap towards further growth via the insurance consulting market.

Why are investment trusts a good vehicle for small cap investing?

Investment trusts are active funds, meaning that they have a professional manager (or team of managers) selecting their holdings. As Brodie-Smith highlights, that means the individuals running an investment trust can really get under the hood of their investments, particularly smaller companies.

The investment trust model is particularly well-suited to investing in relatively illiquid assets like small caps.

“Investment trusts are particularly suitable for investing in smaller, less liquid companies,” explains Brodie-Smith. “Their fund managers are able to take a long-term view of their portfolio because they are never forced sellers."

This is because investment trusts are closed-ended funds; they have a limited number of shares created at their inception, and these shares then trade on stock exchanges independently of the assets they hold.

That does mean that investment trusts can trade at a discount or premium to their net asset value (NAV). This is in contrast to open-ended funds like exchange-traded funds (ETFs).