UK smaller companies labelled the “most unloved stocks in the world” – should you invest?

UK small caps could offer enticing opportunities for contrarian investors looking to bag a valuation discount. Should you invest?

City of London skyline
(Image credit: Chunyip Wong via Getty Images)

UK equities have been unfashionable for the best part of a decade. Valuations suffered as a result of the Brexit referendum in 2016. Since then, limp economic growth and a preference for the tech-heavy US market have compounded the problem.

The domestic market has also suffered as private investors have diversified away from UK equities to adopt a more global approach. Just 4.4% of UK pension assets are now held in domestic equities, according to think tank New Financial. This is a historic low. The global average is 10.1%.

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MSCI Index

Large caps: current 12-month forward P/E ratio vs 10-year average

Small caps: current 12-month forward P/E ratio vs 10-year average

All Country World Index (ACWI)

20%

-3.2%

Asia Pacific ex. Japan

3.7%

21.1%

China

-11.5%

45.6%

Emerging Markets

5%

14.7%

Europe

0.1%

-19.8%

India

8.9%

-0.8%

Japan

-2.4%

-8.8%

UK

-7.7%

-24.3%

US

29%

29%

Katie Williams
Staff Writer

Katie has a background in investment writing and is interested in everything to do with personal finance, politics, and investing. She enjoys translating complex topics into easy-to-understand stories to help people make the most of their money.

Katie believes investing shouldn’t be complicated, and that demystifying it can help normal people improve their lives.

Before joining the MoneyWeek team, Katie worked as an investment writer at Invesco, a global asset management firm. She joined the company as a graduate in 2019. While there, she wrote about the global economy, bond markets, alternative investments and UK equities.

Katie loves writing and studied English at the University of Cambridge. Outside of work, she enjoys going to the theatre, reading novels, travelling and trying new restaurants with friends.