Why the time is right for UK smaller companies

There is no doubt that UK smaller company stocks are out of favour. The broad UK equity market itself is signi cantly under-owned by international asset allocators, who appear to be competing to be the gloomiest about the outcome of the Brexit negotiations. But UK smaller companies are trading at attractive valuations.

Currently, stocks in the Numis Smaller Companies (NSC) index trade at a discount to those in the FTSE 100 index, despite higher earnings growth. While the NSC index trades on a forward price/ earnings (P/E) ratio of just over 12, with earnings growth approaching 7.5%, the FTSE 100 trades on a P/E ratio of approximately 13, and forward earnings growth forecasts average about 7%.1