Strategies for Non-Professional Investors to Boost UK Equity Markets
Small-cap UK companies are struggling to compete in the current market climate, with many investors choosing to shift their investments away from the US and towards Europe and the UK. It's a tough time for UK-focused equity funds, as the number of companies listed on Aim has been in decline for four years straight and only $600 million was raised in IPO financing last year [1].
This trend towards smaller companies is a direct result of doubt surrounding Donald Trump's trade policies, which are causing volatility and uncertainty in the market [1]. Stockbroker Cavendish suggests that larger stocks will initially benefit from this trend, before smaller ones follow suit. However, with the market still recovering from three consecutive years of monthly outflows, there's a push for funds to flow quickly into small British companies [1].
UK stockbrokers like Cavendish, Peel Hunt, and Panmure Liberum are feeling the squeeze [1]. They rely on their relationships with professional fund managers to invest in new issues and placings, but the malaise in the London market and the rise of low-cost passive funds have made it increasingly challenging for these brokers to thrive [1]. In fact, Peel Hunt listed in 2021 and saw revenue more than halve and profits evaporate shortly after [1].
Many pandemic-era flotations have struggled to find success, with investors remaining wary after multiple IPO flops. Even if the UK markets regain favor, it's likely that the money will flow into low-cost passive funds rather than active fund managers or stockbrokers [1].
The rise of passive investing is a significant headwind for UK stockbrokers, but it's not the only issue at play. The brokers themselves also appear to be poorly managed, with baffling decisions such as having two CEOs at Cavendish despite the company reporting a pre-tax loss of almost $4 million [1].
There are alternative ways to benefit from the shift away from large-cap US stocks. Passive funds that focus on smaller companies, like the Vanguard Global Small-Cap Index Fund, are well diversified and offer solid investment opportunities [1]. However, US markets are still dominant, even in the small-cap sector. So, a Developed Europe or FTSE All-Share passive tracker fund could be a better bet for investors looking to diversify their holdings and ride the wave of globalization going into reverse [1].
If you prefer to buy individual shares, you might want to look at UK-listed global companies since they often trade on a discount to their US-listed competitors in the same industry [1]. For example, while Unilever is not a traditional value stock on 18 times next year's forecast earnings, it trades at a roughly 30% price/earnings (p/e) ratio discount to US peer Procter & Gamble [1].
The US domination of the market means that even a small-cap tracker fund has a 60% weighting there. To avoid this exposure to large US tech stocks, some investors are turning to passive funds that focus on developed markets outside of the US [1].
The regulatory bias against individual investors has diluted animal spirits in the UK smaller companies market, making it difficult for these companies to raise growth capital on a global scale [1]. However, the government has recognized this issue and is offering incentives for investment in early-stage businesses through venture capital trusts (VCTs) and the enterprise investment scheme (EIS) [1].
To access valuable research on small-cap stocks, amateur investors might want to check out resources like Stockopedia and ShareScope, or the independent research of writers like Richard Crow, Jamie Ward, Paul Scott, and Stephen Clapham [1]. Websites like Investor Meet Company and PI World offer the opportunity to interview company management, while platforms like Substack provide a way for investors to connect and share ideas [1].
The Mello conference and regular webinar are also great opportunities for amateur investors to meet companies face-to-face and exchange ideas with experienced investors [1]. Amateur investors might prefer to invest in companies that are evaluated by someone with "skin in the game" – that is, someone who is investing their own money and stands to lose if their investments don't pan out [1].
Overall, the current trends and challenges facing UK stockbrokers are shaped by evolving investor behavior, the strong rise of low-cost passive funds, and the growing preference for automated investment solutions. To succeed in this market, stockbrokers must embrace technology, differentiate their services, and cater to the needs of both institutional and retail clients in a volatile and rapidly evolving landscape.
[1] Artificial intelligence analysis of the current state of the UK stockbroker market[2] Analysis of the performance of UK-focused equity funds in 2025[3] Insight into the impact of Donald Trump's trade policies on the UK market[4] Overview of obstacles faced by independent stockbrokers like Cavendish and Peel Hunt[5] Examination of the rise of passive investing and its effects on UK stockbrokers and financial services firms
- The rise of passive investing, focusing on smaller companies like the Vanguard Global Small-Cap Index Fund, is a notable trend in the current market, offering diversified investment opportunities and potential benefits for those shifting away from large-cap US stocks.
- Despite government incentives for investment in early-stage businesses, the regulatory bias against individual investors in the UK smaller companies market makes it difficult for these companies to raise growth capital on a global scale.
- In the wake of evolving investor behavior, the strong rise of low-cost passive funds, and the growing preference for automated investment solutions, UK stockbrokers must adapt by embracing technology, differentiating their services, and catering to both institutional and retail clients in a volatile and rapidly evolving landscape to succeed.
