UK's uncertain political future leads investors to find safety in large caps

The uncertain future of the UK economy following the first hung Parliament in 30 years has led to a sell-off in small-cap stocks as investors seek safety and overseas exposure from blue chips.

The FTSE 250 was down 4.75% to 9,436 in late trading at the end of last week, while the FTSE SmallCap index fell 3.1% to 2,876. Volatility and contagion fears over southern European economies also drove investors into large caps, especially names with heavy overseas exposure. However, this flight to safety and liquidity has pushed down small-cap valuations and driven some multi-cap managers to seek opportunities in this area. “A sell-off like this always throws up opportunities,” says Julian Chillingworth, the chief investment officer at Rathbones. “We do like certain non-FTSE name...