How FTSE Small-Cap Investment Has Benefited Amid Coronavirus

The Covid-19 led market meltdown has severely impacted the confidence of even the seasoned investors, and in that scenario, FTSE Small cap investments, which on usual had been termed as not for the novice, has become a matter of concern for some. But it’s not the case for all, since FTSE Small cap companies are likely to absorb economic pressure better as compared to mid-caps and large caps, they can be considered for defensive strategies as well. As the British government announced plans to ease lockdown, domestic businesses would be at an advantage against international businesses as the threat of the second wave of the deadly pandemic still exists.

Another reason to include FTSE small-cap investments in one’s portfolio is that there is absolutely no reason that they cannot deliver better returns than mainstream investments. The FTSE small-cap index has a wider coverage across multiple sectors and is not merely restricted to mining companies. Most of the institutional investors and asset management companies include FTSE small-cap stocks in their portfolio. Investors are likely to be in the money by investing in small-cap stocks.

The novel coronavirus outbreak has nearly halted economic activities around the world. The deadly pandemic has claimed more than 32 thousand lives in the UK. With capital markets bleeding, the investors’ wealth plummeting, the investors are hurt, not just financially but emotionally as well.

In the short term, equity and related investments could be volatile, however, in the long run, these investments can turn out to be fruitful. Some of the investors would like to explore the market in these unprecedented times while others remain fearful. For long term investors, the deep correction in the stock markets could be a window of opportunity for future wealth generation.

The FTSE 100 index has fallen by nearly 19.5 per cent in the last three months when the pandemic rapidly spread to more than 200 nations. The FTSE AIM All-share index fell by 20.6 per cent in the last quarter. In addition, the FTSE AIM 100 index was down by 14.66 per cent in the passing quarter. This implies that small caps have absorbed the pressure better than large caps in the period of global turmoil. Ranked by market capitalisation on the junior market, the FTSE AIM 100 index is a bucket of 100 companies which operate in the UK. Unlike the blue-chip companies listed on the FTSE 100 index, which have higher market capitalisations along with international presence. These different indices on the LSE comprise of companies from various sectors, which can be used as a benchmark for institutional investors and analysts. These indices are a wider refection of how an economy is performing. Moreover, analysts and investors use these indices as a method for risk diversification. These indices are also replicated by pooled investments such as mutual funds.

The FTSE AIM All-share index and FTSE AIM 100 index can be a barometer for FTSE small-cap stocks. These stocks have lower market capitalisations. Even with lesser money at disposal, investors can consider them in their portfolio as they are affordable.

For passive investors, FTSE small-cap index funds could be an option who do not wish to time the market. These index funds are managed by the asset management companies and provide with the exposure to FTSE small-cap stocks.

In this article we will discuss insights about few stocks which operate in the different realms of the economy such as Financial Services, Consumer Goods, and Telecommunication services; quoted on the FTSE All Share index of the London Stock Exchange (LSE). The stocks under review are Premier Foods Plc, Batm Advanced Communications Ltd, The Biotech Growth Trust Plc, Baillie Gifford US Growth Trust Plc and CMC Markets Plc. We have considered these stocks for discussion based on their recent price returns during the coronavirus crisis. All these stocks have yielded double-digit returns in the last three months.

• Premier Foods Plc (LON:PFD)

Consumer services group, Premier Foods Plc, specialises in food processing and beverages. It has a broad range of in-house products from grocery to sweets. On a quarter to date basis, the company has delivered a price return of 86.5 per cent. In the last three months, the company has generated a return of 20.9 per cent. The company has also generated a positive return of 19 per cent on the year to date basis.

On 13th May 2020, at the time of writing (before market close, GMT 11:29 AM), Premier Foods Plc shares were 0.56 per cent down against its previous day closing price, trading at GBX 44.80. Stock's 52 weeks High and Low is GBX 47.50/GBX 17.86. The beta of the company stood at 1.93, reflecting much higher volatility as compared to the benchmark index. The total M-Cap (market capitalisation) of the company while writing stood at £ 382.14 million.

• Batm Advanced Communications Ltd (LON:BVC)

Israel-based technology group, BATM Advanced Communications Ltd is engaged in providing real-time technologies in the areas of medical science and cybersecurity. On a quarter to date basis, the company has delivered a price return of 116.4 per cent. In the last three months, the company has generated a return of 115.50 per cent. The company has generated a positive return of 161.80 per cent on the year to date basis.

On 13th May 2020, at the time of writing (before market close, GMT 11:28 AM), BATM Advanced Communications Ltd shares were 4.52 per cent down against its previous day closing price, trading at GBX 93. Stock's 52 weeks High and Low is GBX 97.60/GBX 30. The beta of the company stood at 0.03, reflecting minimum volatility as compared to the benchmark index. The total M-Cap (market capitalisation) of the company while writing stood at £ 428.83 million.

• The Biotech Growth Trust Plc (LON:BIOG)

Closed-ended investment company, The Biotech Growth Trust Plc seeks wealth generation by investing in the realm of biotechnology across the globe. On a quarter to date basis, the company has delivered a price return of 43.50 per cent. In the last three months, the company has generated a return of 16.20 per cent. The company has generated a positive return of 24.30 per cent on the year to date basis.

On 13th May 2020, at the time of writing (before market close, GMT 11:24 AM), The Biotech Growth Trust Plc shares were 2.74 per cent down against its previous day closing price, trading at GBX 1,136. Stock's 52 weeks High and Low is GBX 1,168.00/GBX 660.38. The beta of the company stood at 0.98, reflecting almost similar volatility as compared to the benchmark index. The total M-Cap (market capitalisation) of the company while writing stood at £457.94 million.

• Baillie Gifford US Growth Trust Plc (LON:USA)

Closed-ended investment company, Baillie Gifford US Growth Trust Plc seeks wealth generation by investing in companies domiciled in the United States. This company is likely to benefit if UK can strike an FTA with the US. On a quarter to date basis, the company has delivered a price return of 32.70 per cent. In the last three months, the company has generated a return of 17.70 per cent. The company has generated a positive return of 33.60 per cent on the year to date basis.

On 13th May 2020, at the time of writing (before market close, GMT 11:23 AM), Baillie Gifford US Growth Trust Plc shares were 0.40 per cent down against its previous day closing price, trading at GBX 187. Stock's 52 weeks High and Low is GBX 188.70/GBX 111. The total M-Cap (market capitalisation) of the company while writing stood at £485.55 million.

• CMC Markets Plc (LON:CMCX)

London-United Kingdom-based, CMC Markets Plc provides online and mobile trading platforms to invest in equities, derivatives, and various other asset classes for both the retail and institutional clients. On a quarter to date basis, the company has delivered a price return of 10.4 per cent. In the last three months, the company has generated a return of 20.9 per cent. The company has generated a positive return of 35.6 per cent on the year to date basis.

On 13th May 2020, at the time of writing (before market close, GMT 11:21 AM), CMC Markets Plc shares were 1.86 per cent up against its previous day closing price, trading at GBX 202.50. Stock's 52 weeks High and Low is GBX 227.90/GBX 75.80. The beta of the company stood at negative 0.49, reflecting inverse correlation with the benchmark index. The total M-Cap (market capitalisation) of the company while writing stood at £574.77 million.

Comparative chart of stock prices of PFD, BVC, BIOG, USA, and CMCX

(Source: Thomson Reuters)