Independent investment management firm Fundamental Asset Management says that investors favouring larger cap stocks may be missing out on returns from small caps post Brexit.
The firm writes that as investors return to the market having left pre and immediately post the EU Referendum, it appears that small cap AIM stocks are not attracting the same attention from buyers as blue chip stocks. While understandable, the firm says, investors could be missing out and some considered analysis might be in order.
Chris Boxall, (pictured) co-founder of FAM says: “The primary concern for many AIM companies in the short term is the foreign currency impact due to the weakness of Sterling. However we consider approximately 40 per cent of our portfolio companies will be net beneficiaries due to strong US dollar denominated sales and UK based costs.
“The longer term impact on earnings from a potentially weakening UK economy is clearly harder to gauge at this point. But if history is any guide, innovative small companies, led by entrepreneurial managers with substantial equity stakes, normally thrive during periods of uncertainty.”
Chris Boxall concludes: “Recent results and announcements from our AIM universe suggest our investee companies are in rude health. While some companies are negatively exposed to a weakening currency and economy, a large number have a growing US presence and could be beneficiaries of the weak pound. Having seen the share prices of several of our portfolio companies’ sell-off over the Brexit period we have been selectively adding to certain stocks. With the notoriously volatile summer months looming, when many smaller companies often see their liquidity dry up, we are wary about over committing, however should obvious opportunities arise we will pounce.”
