The UK mid-cap market is expected to perform well again this year as it has little exposure to the...
The UK mid-cap market is expected to perform well again this year as it has little exposure to the international markets affected by the US slowdown.
For the 12 months to the end of December 2000, the FTSE 250 outperformed the All-Share, with a rise of 5.45% compared with the All-Share's fall of 7.97%.
Angus Franklin, manager of the Baillie Gifford UK smaller companies department, is positive on the UK mid-cap market for 2001.
"The UK is well positioned as it is, to some extent, isolated from the US slowdown. The UK is slowing, but not so that it is anything to be concerned about. The UK labour market is still tight, interest rates are falling and the retail market is buoyant," Franklin says.
Franklin believes mid-cap companies make the ideal investment because they do not have the international exposure that large-caps have.
David Stevenson, an investment manager at Scottish Value Management, says UK mid-caps had a stellar performance over the past year, relative to the market as a whole.
He says that pharmaceutical firms such as Glaxo SmithKlineBeecham and Astra Zeneca showed hesitant growth in the past year while smaller firms, Galen and Shire Pharmaceuticals, were showing much better growth. Over the year to December, Glaxo rose by 8% and Shire Pharmaceuticals grew by 70.57%.
"Can the mid-caps maintain this performance? The stock market now has a broader base than a year ago when the technology, media and telecoms stocks were outperforming. However, the market has not lost its appetite for risk and there is now a greater variety of growing companies," Stevenson said.
He says the market has lost its appetite for companies that are growing both their topline and their losses and the market is not convinced that the collapse in tech, media and telecoms valuations is finished yet.
Franklin says that domestic retail firms remain a favourite with Baillie Gifford. Its UK funds have about 15% weighting in house building firms, for example, compared with the FTSE mid 250's 11% weighting.
Franklin says these companies are beneficiaries of interest rate cuts and have expected earnings growth of 10% to 15% for 2001 and 2002.