Small companies have been the best places to invest in the UK since the Brexit vote.
Since the vote, the FTSE Small Cap index has grown 38.3%, outshining the FTSE 100 which only managed 31.4%.
Active management was another bright spot for UK small companies. An average return of 48.6% was achieved by those funds in the Investment Association's UK smaller companies sector, which compares favourably with the UK all companies sector, which managed 30.6%.
There are a number of reasons for this. Smaller UK funds were thought to have been more vulnerable to the economic disruption caused by Brexit, causing these funds to drop immediately before the referendum. Darius McDermott of Chelsea Financial Services explains:
"Small caps were in fact beaten up in the run-up to the referendum and, at one point, were sitting at a hefty 20 per cent discount relative to the FTSE 100."
The lack of immediate effects of the Brexit vote caused investors to rush back in to these suddenly undervalued companies. McDermott days:
"When investors realised that the UK economy may not be doomed after all, this discount shrank (it is around 10 per cent today) as they snapped up the stocks which had unfairly been tossed in the bargain bin."
The drop in the pound also made these companies attractive, leading to acquisitions that then boosted share prices.
European small companies performed well in the same period, actually marginally outperforming UK small caps (48.79% vs 48.62%).
While there have not been any major effects from Brexit at this stage, maintaining diversification is key in order to remain well prepared for future shocks.
Your adviser can put a long term, diversified strategy in place that will help you to achieve your financial goals.
The value of investments and income from them may go down as well as up and you may not get back the original amount invested.
Information is based on our current understanding of taxation legislation and regulations which is subject to change.
Past performance is not a reliable indicator of future performance.
What have been the most successful funds since the Brexit vote?