A Look Over FTSE Small Cap Index Amidst The Challenging Brexit Scenario

  • Jan 16, 2019 GMT
  • Team Kalkine
A Look Over FTSE Small Cap Index Amidst The Challenging Brexit Scenario

The FTSE Small Cap, maintained by FTSE Russell, a subsidiary of the London Stock Exchange (LSE) Group, comprises companies with small market capitalisation. The 351st to the 619th largest-listed companies on the LSE main market constitute this index.

Because these companies mostly and commonly operate through a single line of business, if something goes right or wrong in the economy, it can largely affect price valuations in the stock market. Thus, the small cap stocks are extensively volatile.

4IMPRINT GROUP PLC ORD (FOUR), AA PLC ORD (AA), ABERDEEN NEW INDIA INVESTMENT TRUST PLC (ANII), ABERDEEN ASIAN INCOME FUND LTD (AAIF) are some of the companies under the umbrella of small-cap category.

On January 15, the FTSE Small Cap Index closed trading at 5306.56, up by a small 0.01% (0.50 points). After a week-long upswing in the performance on the stock market, from January 4 to January 11, the Index witnessed a sudden dip. This indicated a day on day decline from 5,350.10 on January 11 (Friday) to 5,306.06 on January 14 (Monday) as the week opened.

The downturn in the share prices of small cap companies on January 14, can be attributed to the surprising rise in the value of pound sterling against dollar, as the authorities revealed a possible delay in UK’s departure from the European Union, perhaps beyond the scheduled date. This in turn caused a fall in the exports thus negatively affecting the investment decisions.

While the oil stocks weighed heavy on the market, the losses were balanced by the gains incurred by UK housebuilder companies. Some of the small cap companies, like in the housebuilding and construction space were up. For instance, BOOT (HENRY) PLC (BOOT) was up by 3%, COSTAIN GROUP PLC (COST) was up by 12.5% and KELLER GROUP PLC (KLR) was up by 1% at the time of writing on January 16, 2019 (prior to market close).

According to the popular belief amidst the uncertainty caused by Brexit situation, although the post-Christmas recovery has brought the shares back to an average space as they were at the beginning of the Q4 2018, there is hardly any certainty on what lies ahead. The industry experts believe that the ongoing dynamics indicating a short-term bull market will not last as the investor behaviour exhibits defensive strategies and scepticism in face of a possible global slowdown and other considerable factors.

As far as the small cap companies are concerned, due to their size, they are rarely covered and recommended by the analysts or brokers, so investors tend not to be as much aware of them.  However, the fact to consider is that if a small company starts to deliver and grows over time into one of the mid-caps or large caps, the investor could receive huge returns out of rerating in the long-term. Yet, there is confirmation of returns. This possibility might be unlikely with larger companies.

The FTSE small Cap Index is not the one to be in the limelight on a usual trading day, however, risk loving investors looking to develop a diversified portfolio can find some good value in the stocks of potential small-cap companies as well.

With Bank of England reducing the interest rates to a historic low level, the spotlight is back on diverse investment opportunities. 

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