Trustnet Magazine Issue 10 September 2015 | Page 24

INVESTMENT STRATEGY

SCHRODERS

Following five years of outperformance from mid-cap equities, does this less researched
area of the market have more to offer investors?

W

hile the wider UK equity
market ended the second
quarter of 2015 lower, the
mid cap FTSE 250 (ex investment
trusts) index forged ahead by 4.2
per cent as a more positive UK
economic backdrop favoured
domestic consumer-focused
stocks. Progress was aided by the
unexpected Conservative majority,
as concerns over the implications of
a potential Labour-led coalition in
the run-up to the general election
had been high. This extended a run
of outperformance by the midcap area of the market, which has
proved a fertile hunting ground for
investors over the past five years.
As the economic recovery
has progressed since the global
financial crisis, buoyancy within
the mid cap sector has been driven
by robust corporate growth.
Mergers and acquisitions (M&A)
activity has also been supportive of

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valuations while a wave of initial
public offerings (IPOs) has brought
a range of companies in new and
dynamic industries to the market.
Outperformance hasn’t been a
short-term phenomenon.

STRUCTURAL ADVANTAGE
OR A LUCKY STREAK?
There are a number of reasons
to suggest the long-term case for
investing in the mid cap area of
the UK equity market remains
compelling for those with the
requisite appetite for risk.

• Mid-cap companies tend to
be more nimble than larger
companies and can adapt more
readily to changing economic
conditions.
• Companies in the sector can
benefit from pricing power
where competitors are not able to
address opportunities with equal

speed. This can be a significant
driver of profits growth.
• M&A activity is likely to remain
supportive. The mid-cap universe
can be a very attractive hunting
ground for larger companies
looking for growth. Mid-cap
companies are well established,
have been through the start-up
phase and entered the growth
phase, which makes them
less risky prospects for larger
companies than smaller ones.
It is i