Industry Voice: What lies beneath?

clock • 8 min read
Industry Voice: What lies beneath?

Is your UK mid- and small- cap allocation really delivering you pure UK exposure?  Possibly not.  Traditional indices can inadvertently expose investors to unintended geographies. This affects performance and risk, particularly with mid- and small-caps.

Refining core UK exposure

The traditional UK mid- and small-cap index, the FTSE 250, exposes investors to a high degree of non-UK holdings as typically investment Trusts account can account for nearly a quarter of the index[1].  As a result, with many investment trusts investing in highly uncorrelated assets in emerging markets or the Asia-Pacific region, investors can find themselves with unintended risks.

To avoid this, investors looking for pure UK mid- and small-cap exposure can consider allocating to a product that tracks an index which excludes investment trusts such as the Solactive UK Mid and Small Cap ex Investment Trust index. 

Responding to investor demand

Exposure to the UK equity market is typically a core allocation within the portfolios of UK investors who have called for purer exposure to this market.

Funds and ETFs offering access to the mid- and small-cap market are often considered more representative of the country's performance than their large-cap counterparts, with investors feeling this sector is a more accurate reflection of profits generated within the UK borders. Tracking the 150 largest companies in the UK, the Solactive UK Mid and Small Cap ex Investment Trust index currently includes exposures such as Centrica, Marks and Spencer, Hays, Direct Line and Serco[2].

We are living in uncertain times but, it is often the case that, smaller companies with an entrepreneurial spirit can thrive following a crisis. Though the coronavirus outbreak may have caused increased volatility and ambiguity in the short term, continued investment is likely to produce more encouraging results over the long term.  Exposure to the UK economy remains a key building block within many portfolios.

In order to benefit from any future economic recovery in the UK, investors may prefer to allocate to an index that provides pure exposure to UK mid- and small-cap businesses without having the waters muddied by investment trusts that have a broader portfolio.   

Simple and efficient exposure

An ETF is a simple, low cost means for investors to access a specific market. The Amundi Prime UK Mid- and Small-Cap UCITS ETF is physically replicated and tracks the Solactive UK mid and small cap index ex investment trusts, an index run by an experienced, regulated and robust index provider.

  • With an ongoing charge of 0.05%[3] the fund offers investors a prime advantage in building an ultra-low cost portfolio.
  • The fund offers simple, efficient exposure to the performance of UK companies
  • The fund is easy to trade on the London Stock Exchange
  • The fund is UCITS-compliant and incorporates a controversial weapon screen.

Click here to find out more about The Amundi Prime UK Mid and Small Cap ETF or email us at [email protected]

Key risks of investing in ETFs

  • When buying an ETF, investors are exposing themselves to the risk associated with the markets to which the ETF is exposed. In this case, the UK mid and small cap market.
  • The price and value of investments are linked to the liquidity risk of the index components and the value of the investment can go down as well as up.
  • Investors also run the risk of losing their invested capital or not getting back the original amount they invested.
  • The fund's investment objective may only be partially achieved.
  • Investment in the Amundi Prime UK Mid and Small Cap ETF is also exposed to the risk associated with the volatility of the securities which make up the underlying Solactive index.

This post was funded by Amundi.

IMPORTANT INFORMATION

For Professional Clients only. This article is being issued in the United Kingdom ("UK") by Amundi (UK) Limited, 77 Coleman Street, London EC2R 5BJ, UK, which is authorised and regulated by the Financial Conduct Authority (the "FCA") and entered on the FCA's Financial Services Register under number 114503. This may be checked at https://register.fca.org.uk/ and further information of its authorisation is available on request. Past performance is not a guarantee or indication of future results. Amundi Prime UK Mid and Small Cap, a sub-fund of Amundi Index Solutions, is a recognised collective investment scheme for the purposes of Section 264 of the Financial Services and Markets Act 2000. This article is not intended for distribution to, or use by, any person or entity in any country or jurisdiction where to do so would be contrary to law or regulation or which would subject Amundi (UK) Limited or any entity within the Amundi group (together, "Amundi") to any registration requirements in these jurisdictions. This article and all the information, data, opinion, performance, and other figures contained herein are proprietary and cannot be published or reproduced, fully or partly, without Amundi's prior written authorisation. Amundi does not accept any liability, responsibility or duty of care, whatsoever, with respect to this article. Amundi does not give any guarantee (whether express or implied), warranty, undertaking or representation as to the accuracy, validity, relevance, exhaustiveness, timeliness, completeness and/or reliability of the information contained herein. The opinions expressed reflect the current judgement of the personnel of Amundi and may be subject to change without notice. Amundi shall be under no obligation to update the information. This article is only directed at persons who are Professional Clients (as defined in the FCA's Handbook of Rules and Guidance), must not be distributed to the public and must not be relied or acted upon by any other persons for any purposes whatsoever. Potential investors in the UK should be aware that none of the protections afforded by the UK regulatory system will apply to an investment in the Funds and that compensation will not be available under the UK Financial Services Compensation Scheme.

Investment in a Fund carries a substantial degree of risk such as Risk of capital loss - Underlying risk - Volatility Risk. Before any investment, please read the detailed descriptions of the main risks in the KIID and prospectus.  This marketing document is directed only at professional clients, eligible counterparties within the meaning of the European directive n°2004/39 on markets in financial instruments (the MiFID Directive) and/or to qualified investors within the meaning of the local jurisdiction, all acting solely and exclusively on their own account.

This document is not intended for citizens or residents of the United States of America or to any "U.S. Person" , as this term is defined in SEC Regulation S under the U.S. Securities Act of 1933.  The "US Person" definition is provided in the legal mentions of our website www.amundi.com. Investors are subject to the risk of loss of capital. Promotional & non-contractual. Information which should not in any way be regarded as investment advice, an investment recommendation, a solicitation of an investment offer, or a purchase of any financial securities. The accuracy, completeness and relevance of the information, forecasts and analyses provided are not guaranteed. They have been prepared from sources considered reliable and may be altered without prior notice. The information and forecasts are inevitably partial, provided on the basis of market data observed at a particular moment, and are subject to change. This document may contain information from third parties that do not belong to Amundi ("Third Party Content"). Third Party Content is provided for information purposes only (for illustration, comparison, etc.).

Any opinion or recommendation contained in Third Party Content derives exclusively from these third parties and in no circumstances shall the reproduction or use of those opinions and recommendation by Amundi AM constitute an implicit or explicit approval by Amundi AM. Information reputed exact as of November 2021.

Reproduction prohibited without the written consent of the Management Company. Amundi ETF designates the ETF business of Amundi Asset Management. This Document was not reviewed/stamped/approved by any Financial Authority. Amundi ETF funds are neither sponsored, approved nor sold by the index providers. The index providers do not make any declaration as to the suitability of any investment. A full description of the indices is available from the providers.

Amundi Asset Management, French "Société par Actions Simplifiée" - SAS with capital of EUR 1 143 615 555- Portfolio Management Company approved by the AMF (French securities regulator) under no. GP 04000036 - Registered office: 90 boulevard Pasteur, 75015 Paris - France. 437 574 452 RCS Paris.

"Amundi Index Solutions", a Luxembourg SICAV, RCS B206810, located 5, allée Scheffer, L-2520 Luxembourg. The sub-funds were approved for public distribution in Luxembourg by the Commission de Surveillance du Secteur Financier of Luxembourg.

The financial instrument is not sponsored, promoted, sold or supported in any other manner by Solactive AG nor does Solactive AG offer any express or implicit guarantee or assurance either with regard to the results of using the Index and/or Index trade mark or the Index Price at any time or in any other respect. The Index is calculated and published by Solactive AG. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards the Issuer, Solactive AG has no obligation to point out errors in the Index to third parties including but not limited to investors and/or financial intermediaries of the financial instrument. Neither publication of the Index by Solactive AG nor the licensing of the Index or Index trade mark for the purpose of use in connection with the financial instrument constitutes a recommendation by Solactive AG to invest capital in said financial instrument nor does it in any way represent an assurance or opinion of Solactive AG with regard to any investment in this financial instrument.


[1] Source: Amundi and FTSE

[2] Source Solactive as at 11/11/2021

[3]  Ongoing charges - annual, all taxes included. The ongoing charges represent the charges taken from the fund over a year. Until the fund has closed its accounts for the first time, the ongoing charges are estimated. Transaction cost and commissions may occur when trading ETFs.

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