The polarisation of perspectives on the UK market has continued throughout 2020.
For some, the belief continues that all one has to do is buy stocks that are at higher valuation points and perceived to provide safety of earnings, such as Rentokil or Unilever.
For others, the view is that the UK small-cap market is the only cheap asset category within the UK. However. buying into this area continues to be unattractive.
It is within this context that the quote, credited to American investor Benjamin Graham, springs to mind: "In the short run, the stockmarket is a voting machine. Yet in the long run, it is a weighing machine."
At this time, it seems that the UK market is more like a voting machine.
There are a number of factors that are leading to the over-buying of certain investments. One factor is the consolidation and globalisation of the fund management industry, causing fund managers to buy ever-bigger companies in fewer funds.
Other factors are attributable to the recent success of growth investing over value and the rise of passive funds, both of which have led to a momentum investing approach, where shares that succeed tend to continue succeeding.
So concentrated has thinking become that many of the stockmarket 'darlings' are now 2.5x to 3x more expensive per pound of profit than the 'left behinds'. This seems excessive.
It is difficult to see many of the factors at play in the investment industry changing any time soon.
During 2019 we saw a steady stream of sellers in smaller-cap companies, leading to the small-cap discount becoming extreme, and nearly as stretched as in 2009.
However, by buying smaller companies that are growing there is the chance to benefit from a significant capital appreciation.
Firstly, small-sized businesses have the capacity to grow faster and, secondly, as they gain in market size they are likely to see their valuations increase as more investors turn towards to sector.
Richard Penny is manager of TM CRUX UK Special Situations fund
• Smaller UK growth companies remain attractive
• The post-Brexit small-cap discount has approached levels last seen in 2008
• Expensive defensives are becoming increasingly overpriced
• Some excellent businesses are now priced for perfection offering limited upside