Active investment commentary & analysis

Investors and mid-cap companies

The forces favouring mid-cap and stocks lower down the FTSE 100, have been in place for more than 20 years, and this has also supported growth businesses. Although there have been periods of reversal of this pattern - where there has been profit-taking, these have rarely lasted more than six to nine months. In contrast, many of the biggest global companies have been impacted by disinflation and, more recently, disruption. This may continue despite the recent uptick in inflation, due to ongoing technology change and global competition. Business investment to improve productivity appears to be picking-up as labour costs rise.

Few, if any, investors are able to time the market and so investment is best driven by consistent fundamental analysis. This includes regular meetings with investee companies with a focus on underlying business performance. Despite the macro background, a number of mid cap companies have a capability to achieve better profits growth by self-help. If there is risk of credit tightening, it may be safer to focus on businesses that are cash-generative and capital-lite with little need for external fundraising. This should help them through the market cycle. The scaling-up these businesses can do is based on platforms they have already invested in.