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[ JANUS HENDERSON ]
James Henderson, co-fund manager of Henderson Opportunities
Trust, explains why liquidity concerns around UK smaller companies
may be exaggerated and why a rally could be around the corner
Is there a liquidity
problem in UK
small cap?
T
he smaller company
investor faces a new
problem following the
fallout over Woodford’s
funds: this is the focus on liquidity.
How long would it take to liquidate a
position at the quoted price?
This is the question portfolio
managers are being asked by their risk
departments and business managers.
The usual answer is to say if you take
20% of the average daily volume of a
stock and divide that into the number
of shares held, we get an idea of how
many days it should take to sell.
The problem with this answer is it
does not necessarily reflect how the
market for smaller companies works.
The daily volume number is taken
direct from figures published by the
London Stock Exchange (LSE).
TRUSTNET
A trend in recent years has been for
there to be more trades happening ‘off
market’, in the so-called dark pools.
It is estimated across the market
as much as 40% of trades by value
happen this way. Therefore, using just
LSE volumes over-exaggerates the
liquidity problem. Currently, small
cap trading volumes have been low
as investors sit and watch macro-
economic developments. Activity will
pick up as confidence returns and
A trend in recent years
has been for there to be
more trades happening ‘off
market’, in the so-called
dark pools
trustnet.com