Many companies in the UK market will be hoping to benefit from the volatility and uncertainty caused by Donald Trump’s trade policies. Fund manager Jupiter says it is seeing evidence of investors rotating away from the US towards other markets, including Europe and the UK. Stockbroker Cavendish suggests this trend will first benefit the largest stocks, before filtering through to smaller ones. Yet if money starts flowing back into Britain – and in particular into small companies – this cannot happen fast enough.
After three consecutive years of monthly outflows, 2025 has again started badly. UK-focused equity funds saw their worst quarter in the first three months of this year. The number of companies listed on Aim has declined for four years in a row, and now stands at just 685, compared with 1,700 before the financial crisis. Less than £600 million was raised in initial public offering (IPO) financing last year – and even that statistic understates the problems for London.
While IPOs generate headlines, the appetite for further fundraising – listed companies that ask investors for more money – is also in a dire state. One of the benefits of being listed on public markets is that management can ask equity investors for more money to grow their business. An example is Invinity, a manufacturer of vanadium-flow batteries, or Cohort, the defence group which raised money last year to make an overseas acquisition. Yet active fund managers – such as Jupiter, which has seen almost £30 billion of retail investor outflows since before the pandemic – are less willing than before to back management of UK-listed companies seeking growth capital to expand their business.
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Structurally challenged stockbrokers
All this has affected independent stockbrokers such as Cavendish (LSE: CAV), Peel Hunt (LSE: PEEL) and unlisted Panmure Liberum, who rely on their relationships with professional fund managers to invest in new issues and placings. The malaise in the London market – together with the rise of low-cost passive funds – has challenged their business model. For example, Peel Hunt listed in 2021 and promptly saw revenue more than halve and profits evaporate. The IPO was an excellent result for the selling shareholders (228p), but less so for anyone who bought – the shares trade at 85p at time of writing.
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Of course, the same is true of other pandemic-era flotations. In 2021, 87 companies floated on Aim, raising £3.7 billion. Of those new issues, 67 are now down by more than 60% or have delisted. Less than ten of the 2021 vintage are trading above their float price. Therein lies another part of the problem. You might conclude that UK stockbrokers are obvious beneficiaries of a turnaround. Yet investors are wary after so many IPO flops. So even if we see UK markets coming back into favour, the money may well flow into low-cost passive funds. In that case, it is likely neither active fund managers nor stockbrokers peddling overpriced floats will benefit.
Passive investing is a structural headwind for UK stockbrokers – although the brokers also appear to be ineptly managed. Sceptics may wonder why a firm the size of Cavendish, which reported a pre-tax loss of almost £4 million for the year ending March 2024, needs two chief executives. The benefits of consolidation and cost reduction resulting from the merger of Cenkos and Finncap (which formed Cavendish in 2023) appear not to have reached the upper levels of the organisation if there is a need for duplication of management responsibilities at the top.
Riding the wave
There are alternative ways to benefit from the shift away from large-cap US stocks. Passive funds that focus on smaller companies, like the Vanguard Global Small-Cap Index Fund, are well diversified across almost 4,000 stocks. This avoids exposure to the biggest tech stocks that have performed spectacularly well over the last decade, but now face a less certain future. However, US markets have become so dominant that even a small-cap tracker fund has a 60% weighting there. Instead, a Developed Europe or FTSE All-Share passive tracker fund could be a better way to benefit from globalisation going into reverse.
Investors who prefer to buy individual shares, rather than buying a passive index tracker, could look first at the UK-listed global companies, since these often trade on a discount to their US-listed competitors in the same sector. For example, while Unilever (LSE: ULVR) is not a traditional value stock on 18 times next year’s forecast earnings, it trades at a roughly 30% price/earnings (p/e) ratio discount to US peer Procter & Gamble. In the tobacco sector, Philip Morris International, listed in New York, trades on a p/e of 21, compared to less than ten for BATS (LSE: BATS). We see a similar discount in the oil sector, comparing ExxonMobil with Shell (LSE: SHEL), or in banks with JP Morgan versus Barclays (LSE: BARC). It seems unlikely that being listed in the USA justifies such a valuation premium for large corporations that operate across the world.
However, this points to another part of the problem with the UK market. For a long time, regulators have tried to dissuade individuals from investing directly in shares. There’s an implicit assumption in much regulation that professionals with Bloomberg terminals and access to company management have an advantage over the investing amateur. Yet often the amateurs – who are unconstrained by liquidity or fund outflows – can take advantage of opportunities first. Most fund managers will not invest below a £200 million market cap, which is 80% of Aim companies. Yet of the 23 UK-listed stocks that have increased in value 100-fold since 2000, the average size they started at was less than £15 million, reckons Richard Penny, who runs the TM Oberon UK Smaller Companies Fund.
Take Games Workshop (LSE: GAW), which had a vocal retail investor following long before most professional fund managers paid any attention. What attracted me to the company was the highly readable and entertainingly direct communication style of Tom Kirby, the previous chair. In 2007, when the group was in debt and had reported an 11p loss per share, his “Chairman’s preamble” said the company had grown “fat and lazy on the back of easy success”. Such directness can be off-putting to professionals used to language crafted by financial PR firms, but to the amateur, it is a breath of fresh air.
This regulatory bias has diluted animal spirits so much that UK smaller companies are struggling to raise growth capital to compete on a global stage. The government rightly incentivises investment in early-stage businesses through venture capital trusts (VCTs) and the enterprise investment scheme (EIS). Yet when these VCT and EIS businesses succeed, they seem unwilling to list on UK markets (consider fintechs such as ClearScore, Monzo, OakNorth and Revolut).
With active UK funds shrinking, one obvious step towards fixing this is to encourage individual investors to back IPOs directly. However, this will only be a success if good listings are “priced to go” at attractive valuations – unlike previous duff IPOs such as CAB, Funding Circle and Metro Bank. Amateurs will not tolerate shares falling steeply in the years after listing. They are risking their own money – not their clients.
How to find the next Games Workshop
There are a number of sources that make life easier for amateur investors willing to have a go at investing in individual companies. Many small-cap brokers will make their research available online on their own websites portals or aggregated on Research Tree, provided that investors self-certify as eligible. However, be aware that broker research is too often little more than a regurgitation of the investment case that management make in their own investor relations material, plus forecasts made by the analyst on the basis of management guidance.
Indeed, it is not uncommon for management to make vaguely upbeat comments in the outlook section of their regulatory news service (RNS) filings, while guiding their broker to slash forecast earnings. The RNS filings themselves are available on the London Stock Exchange website as well as on company’s own websites. It is surprising how few individual investors read these announcements and decide for themselves whether management is straight-talking – or not.
For detailed data, take a look at Stockopedia and ShareScope. These bring much of the functionality of a professional Bloomberg terminal to your desk, but at a fraction of the cost. For genuinely independent research, there are a number of writers who share their experience and investment process for free using the Substack platform. These include Cockney Rebel (otherwise known as Richard Crow), Jamie Ward at Wonder Stocks, Small Caps Life and Paul Scott. Stephen Clapham, a former hedge-fund analyst, promotes his forensic accounting courses that help identify inconsistencies in companies’ numbers. For a more confrontational style, there’s Tom Winnifrith, the self-appointed “Sheriff of AIM”.
Live presentations on Investor Meet Company give amateurs almost the same access as institutional investors. The difference is that viewers cannot see the list of questions asked by other meeting participants, and so are left in the dark about which questions company management choose to skip over or evade. PI World has just under 1,000 UK company and investor interviews. Paul Hill at Vox Markets also interviews company management while investing his own money.
None of these sources are infallible: Paul Hill lost a substantial amount of money investing in Argentex. Most writers will caveat their analysis and interviews, saying that they are not offering investment advice and are unregulated. DYOR – Do Your Own Research – is a popular acronym that has become a disclaimer. Rather than a conflict of interest, this “skin in the game” reassures amateur investors. Would you rather listen to someone who is investing their own money, and losing cash when they make a mistake, or a regulated advisor who ticks boxes and still earns a fee even when their advice loses you money?
David Stredder, another well-known private investor, organises the Mello conference and regular webinar for like-minded investors to meet companies. Originally, these events were organised in a restaurant called Mello, but the conference has grown to fill a hotel in Chiswick, west London. The physical presentations allow investors to meet company management and fund managers face to face, and to chat with other investors, many of whom have decades of experience and come from all sorts of backgrounds. Most treat investing as a hobby, and enjoy the mental rewards of that as well as the financial gains. In that respect, the amateur investing community is not unlike a Warhammer convention.
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