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.
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[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.
