May Market Commentary
Commentary by RPM Holdings Limited – A Thornbridge Appointed Representative
Accelerated Catalyst for UK Smaller Companies
The unavoidable news this month was the earlier-than-expected calling of the UK General Election by Rishi Sunak. This accelerates the delivery of an important catalyst – a refreshed political mandate which we view reduces uncertainty. Uncertainty is also reduced by how strongly polls point to a Labour landslide, with a Lib-Lab coalition the next most likely. Helpfully, Labour have been very clear that they will not raise main taxes further, nor raise borrowing, meaning the focus is on stimulating more activity by other means such as boosting construction through addressing current planning gridlock and continuing steps to harness UK pensions clout by re-directing investment into the UK economy via private and smaller listed companies.
One catalyst that may be delayed is a possible cut by the Bank of England of the UK base rate of interest. Independency means it should not be influenced, but to avoid the perception of influence, the choice on 20th June may be to tide over to the next meeting in early August. Meanwhile, the Eurozone, Canada, Switzerland and a growing number of other central banks have started cutting rates. If the Bank of England were to join in, there is a very strong association between the first rate cut of a cycle and subsequent strong 2-year absolute returns by UK Smaller Companies, as well as typically strong outperformance compared to larger companies.
RPM Holdings is an Appointed Representative of Thornbridge Investment Management and is launching the WS Raynar UK Smaller Companies fund – a UK UCITS Fund managed by Philip Rodrigs.
Author: Alex Hackett
Alex a Business Development Manager and a member of the investment funds team and is involved in portfolio construction, regulatory reporting, trade surveillance and monitoring.