SCP could offer exposure to a recovery in UK mid caps…by Jean-Baptiste Andrieux
Overview
This trust has been awarded a rating by Kepler Trust Intelligence for income. Find out more
Schroder UK Mid Cap (SCP) offers exposure to UK mid caps, an area of the domestic stock market that managers Jean Roche and Andy Brough believe benefits from innovation, disruption, and growth. The trust’s holdings typically fall into two broad categories: ‘unique’ and ‘flex’. Unique stocks are companies offering quality characteristics as well as strong growth potential. In contrast, flex stocks tend to be more cyclical businesses trading on attractive valuations, which Jean and Andy buy in anticipation of a turnaround.
Over the past 12 months, the managers have taken advantage of attractive valuations in the UK mid-cap space to build new positions in ‘unique’ stocks. These include, for example, online reviews platform Trustpilot, which Jean and Andy see as a beneficiary of developments in artificial intelligence (AI), as it is one of the most cited sources by AI agents. That said, they have also introduced new ‘flex’ stocks into the Portfolio over the same period, including Kier Group, a company involved in construction, civil engineering, and property management. Jean and Andy see a strong outlook for this business thanks to the UK government’s plans to ramp up housing and infrastructure construction, while many competitors have been exiting the market. Conversely, Jean and Andy have reduced exposure to defense-related names, notably through the sale of Babcock International following its promotion to the FTSE 100 Index.
As the managers have not yet reinvested all the proceeds from their sales, Gearing has been reduced during 2025 and stood at 4.4% at the end of June. In addition, SCP declared an interim Dividend of 6.5p for FY 2026, representing a c. 3.2% year-on-year increase and resulting in a historic yield of c. 3%. Finally, the trust’s Discountcurrently stands at c. 5%.
Analyst’s View
We view UK mid caps as particularly attractive at this juncture, as they are trading at a discount both to their own history and to the FTSE 100. In our view, this represents an anomaly, given that UK mid caps have historically traded at a premium to their large-cap peers, reflecting their stronger growth potential. In our view, the value available in the domestic mid-cap space is demonstrated by M&A activity, with trade buyers and private equity firms taking advantage of attractive valuations to acquire businesses, as well as by the elevated pace of share buybacks undertaken by companies. It is also worth noting that both M&A activity and share buybacks can be supportive of shareholder returns.
We think SCP could be an attractive vehicle for gaining exposure to the opportunity presented by UK mid caps. The trust boasts an impressive long-term Performance track record, having largely outperformed its benchmark since its launch in April 2003, as well as over multiple market cycles, suggesting a degree of repeatability in its investment process. In addition, we believe that Jean and Andy’s approach, investing in both quality and attractively valued cyclical companies, should enable SCP to capture upside regardless of which investment factor is in favour.
Finally, we note that several measures have been implemented to strengthen the trust’s investment proposition in recent years. So far in 2026, these have included a 100% tender offer, providing investors with an opportunity for liquidity, as well as the implementation of a discount management policy aimed at maintaining a mid-single-digit discount in normal market conditions. These build on initiatives introduced in early 2025, which included a renewed focus on share buybacks, a reduction in management fees, and a continuation vote to be held in 2028 and, if passed, every three years thereafter.
Bull
- Strong long- and short-term track record of outperformance
- UK mid caps are attractively valued and offer stronger earnings growth potential
- Several measures have been taken to further strengthen the trust’s investment proposition
Bear
- Geopolitical tensions in the Middle East could impact UK inflation, interest rates, and growth expectations
- UK mid caps remain out of favour with investors
- Higher charges than its average sector peer
Click to visit:
Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that Independent financial advice should be taken before entering into any financial transaction.
The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject Kepler Partners LLP to any registration requirement within such jurisdiction or country. In particular, this website is exclusively for non-US Persons. Persons who access this information are required to inform themselves and to comply with any such restrictions.
The information contained in this website is not intended to constitute, and should not be construed as, investment advice. No representation or warranty, express or implied, is given by any person as to the accuracy or completeness of the information and no responsibility or liability is accepted for the accuracy or sufficiency of any of the information, for any errors, omissions or misstatements, negligent or otherwise. Any views and opinions, whilst given in good faith, are subject to change without notice.
This is not an official confirmation of terms and is not a recommendation, offer or solicitation to buy or sell or take any action in relation to any investment mentioned herein. Any prices or quotations contained herein are indicative only.
Kepler Partners LLP (including its partners, employees and representatives) or a connected person may have positions in or options on the securities detailed in this report, and may buy, sell or offer to purchase or sell such securities from time to time, but will at all times be subject to restrictions imposed by the firm’s internal rules. A copy of the firm’s Conflict of Interest policy is available on request.
The post Could offer exposure to a recovery in UK mid caps: Schroder UK Mid Cap appeared first on USNewsRank.