5th January 2026
Many global indices continued to hover around record highs in December with the Fed and MPC cutting interest rates. As has been our mantra for much of the last two years we believe that UK equities respond well to interest rate cuts and foresee further cuts in 2026. M&A has continued to be a prominent feature, company results/updates have continued to be more positive than negative. UK equities, especially at the smaller end, generally remain unloved and undervalued, in our view. Our wish for 2026 is for some sustained inflows into smaller UK equities in 2026!
Smaller UK indices up in 2025 but bar FTSE Fledgling lagged FTSE 100 significantly
As Figure 1 and Figure 2 demonstrate, all UK indices were up in December, with the FTSE 100 again hitting record highs last month. The FTSE 100 significantly outperformed the mid and small cap indices but did slightly lag the FTSE Fledgling. It nevertheless remains most encouraging to see all indices are in positive territory over the last 12 months. The trend of most companies meeting or beating expectations continued in December with positives again outweighing negatives. M&A has also continued to be a support across the market.
Major international indices also up strongly YTD
In US dollars, the S&P 500 was up 16.4% in 2025, while Big Tech led the Nasdaq Composite recovery since April and was up 20.4% with the Dow Jones up 13.0%. In local currencies, the Dax was up 23.0$ in 2025, the CAC was up 10.4% and the Nikkei was up 26.2%.
UK Small Caps set for a strong year in our view
We hosted a conference last month, which featured presenters from BlackRock Smaller Companies (Roland Arnold), Henderson Smaller Companies (Indri van Hien), JP Morgan UK Small Cap Growth & Income (Katen Patel) and Onward Opportunities (Laurence Hulse). Unsurprisingly, the consensus of the Conference was that the smaller end of the UK equities market provides some compelling investment opportunities for investors. There is the potential for earnings upgrades and re-ratings in 2026. Our investment thesis that UK markets respond positively to interest rate cuts remains intact and we believe that any meaningful inflow into the smaller end of the market would lead to an excellent year for investors.