Small caps: how to ride the recovery wave of UK equities
Professional investor Ken Wotton highlights British small caps that hit the sweet spot of the British equity market


British small caps have demonstrated remarkable resilience, outperforming blue chips over the past year. Fuelled by a surge in takeover activity, investors’ interest in the sector has ignited – yet stocks remain materially undervalued. With a backdrop of anticipated interest rate cuts and a new government committed to stability, we believe the stage is set for investors to capture long-term growth in this asset class.
Our focus is on this “sweet spot” of UK equities. By taking significant stakes in our holdings, we can use our private equity expertise by engaging with firms’ boards to support value creation. This approach enables us to curate a concentrated portfolio of exceptional companies in structurally growing sectors.
British small caps: a wealth of opportunity
The UK wealth-management sector is a burgeoning market, underpinned by robust structural growth drivers including rising household wealth, a persistent advice gap and supportive government policies. Despite the sector being “out of favour”, well-positioned businesses that can weather the storm will emerge stronger as inflation cools and interest rates decline, stimulating positive fund flows.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Brooks Macdonald (Aim: BRK) is a prime example. Its recent transformation and investment initiatives have positioned it for robust asset growth and improved profitability as market conditions improve. While we do not base investment decisions on potential takeover speculation, note that the sector’s consolidation is driven by private equity’s interest in high-quality businesses at attractive valuations. This dynamic provides a degree of downside protection. However, we anticipate that the market will eventually recognise the company’s exceptional qualities, leading to a substantial rerating of its shares.
The UK residential lettings market is experiencing several favourable long-term trends. These include the challenge of home-purchase affordability (exacerbated by elevated interest rates), the relative lack of new construction and the depressed supply of rental stock.
The Property Franchise Group (Aim: TPFG) has just become the UK’s largest franchised multi-brand estate agency group through its merger with Belvoir Group.
TPFG generates its revenue by collecting franchise fees in exchange for a suite of support services, which provides TPFG with a highly attractive and resilient earnings profile throughout market cycles. In addition, as UK residential housing sales volumes begin to recover, TPFG is well placed to benefit through its sales and mortgage-broking exposure. Green shoots of this cyclical recovery are evident, with TPFG reporting a 16% like-for-like increase in its pipeline of agreed sales in June 2024, marginally ahead of the 15% recorded for the wider UK residential housing market.
Costain Group (LSE: COST), a leading infrastructure engineering and consultancy services provider, should capitalise on several tailwinds. The state’s substantial £700 billion infrastructure investment pipeline over the next decade presents ample growth opportunities across Costain’s core markets of transport, water, energy and defence. Furthermore, the increasing emphasis on sustainability aligns perfectly with the company’s record of delivering positive environmental and social outcomes.
The adoption of industry best practices, as outlined in the government’s Construction Playbook, is shaping the market in a way that favours Costain’s expertise in risk management and operational excellence. Costain’s strong balance sheet provides scope to invest in growth initiatives and navigate potential industry challenges.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Ken Wotton is lead manager of Strategic Equity Capital plc and Managing Director, Public Equity at Gresham House and leads the investment team managing public equity investments. Alongside this, he is manager for WS Gresham House UK Micro Cap Fund, WS Gresham House UK Multi Cap Income Fund and manages AIM listed portfolios on behalf of the Baronsmead VCTs. Ken graduated from Brasenose College, Oxford, before qualifying as a Chartered Accountant with KPMG. He was an equity research analyst with Commerzbank and then Evolution Securities prior to spending the past 12 years as a Fund Manager at Livingbridge and now Gresham House specialising in smaller companies.
-
Two thirds of easy access savings accounts come with restrictions – can you access your savings in an emergency?
Out of the top 30 easy access savings on the market, 22 come with some sort of restriction on how fast you can access your money, according to new research.
-
Most popular London boroughs: Full list of in-demand places to move to
A deluge of people move to or within Britain’s capital each year – but which area is the most popular? We look at the most in-demand London boroughs in 2025.
-
Global investors have overlooked some of China’s best growth stocks
Opinion Dale Nicholls, portfolio manager, Fidelity China Special Situations, highlights three Chinese businesses where he’d put his money
-
How Next defied the odds and positioned itself as a British high-street staple
Next rose from a near-death experience and now thrives as a high-street staple. What's driving its success – and should you invest in the retailer?
-
Alok Sama on AI and how to invest in the future of technology
Interview Alok Sama, the former president and chief financial officer of Masayoshi Son’s investment vehicle SoftBank Group International, explains AI’s potential
-
The private equity puzzle
Listed private equity trusts still trade at large discounts, despite sales that validate their valuations
-
Why investors should avoid market monomania
Opinion Today’s overwhelming focus on US markets leaves investors guessing about opportunities and risks elsewhere
-
Can Rachel Reeves save the City?
Opinion Chancellor Rachel Reeves is mulling a tax cut, which would be welcome – but it’s nowhere near enough, says Matthew Lynn
-
Pierre-Édouard Stérin wants to make France great again
Conservative billionaire Pierre-Édouard Stérin is seeking to lead a political and spiritual renaissance across the Channel. The planning looks meticulous
-
Global investors have overlooked the top innovators in emerging markets
Opinion Carlos Hardenberg, portfolio manager, Mobius Investment Trust, highlights three emerging market stocks where he’d put his money