Mid caps still the place to be in 2014

Latest research suggests that the UK’s mid-sized businesses are powering the economic recovery.

Mid caps still the place to be in 2014


Medium-sized companies have grown by more than 5% since before the financial crisis, beating the number of larger firms which grew 1.6%, and outpacing smaller businesses which saw a 0.9% decline.
“The shape and size of these businesses meant they were able to navigate the economic storm of recent years better than the rest of the market, and have made the most of the few growth opportunities that were out there,” CEO Scott Barnes said.
Growth in this sector could be boosted by greater exports and tackling skills shortage, the report proposes. Average exports are still low – only a 4% growth is expected by businesses as a whole this year. Medium-sized exports are anticipated to be slightly better performing, with an increase of 4.4% expected this year, compared to 4.3% last year. 

Dividend growth  

Emulating Germany’s Mittelstand – the country’s mid-tier powerhouses worth billions – the UK’s medium-sized businesses carry the potential to exploit post-recession economic confidence. This sets up mid-caps as strong contenders in UK equity income portfolios.  
Medium and small-size companies make up 40% of Old Mutual’s UK Equity Income Fund run by Stephen Message, who looks at mid-caps starting to benefit from the rebounding UK economy for his portfolio. The fund strategy is a focus on dividend growth, according to Message. 
"The concentration is on the dividend, with a bias towards businesses in the UK. If the business is growing, the share price will go up," he said.
"This year will be a stock-pickers market, so we will see a polarisation of stocks as share prices rise. Companies need to deliver."
The top sector on his list of UK growth opportunities is housing, where businesses are likely to profit from an increase in housing transactions. These include kitchen providers, house builders, and companies such as the Big Yellow Group, a provider of self-storage space.
In three years to March 2014, the fund run by Message has gained 48.27% according to FE analytics, compared with 40.06% from the average fund in the IMA UK Equity Income sector. 


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