Outlook for medium sized companies

By Meera Patel | 06 Feb, 2008 

2007 was a tough year for medium sized companies (or mid caps). They came under pressure as worries about the credit crunch and its impact on the UK and global economies drove investors towards larger companies.

Some UK equity fund managers have a bias towards medium sized companies because they offer the potential for superior long term returns. Despite the volatility, we believe medium sized companies have not lost their shine. Company profits are still robust and dividend increases have been healthy, so much so that market consensus is that overall dividends are expected to grow by 8% this year.

There has also been a pick up in takeover activity. As growth begins to slow, companies look at other ways to improve their margins and merger activity can often be one source. Mid caps tend to be the main beneficiaries of this rather than larger companies.

The interest rate back drop is also becoming favourable for medium sized companies and further cuts should help boost this area of the market. For the first time in months, I feel valuations in mid caps are currently more attractive than larger companies so the growth outlook for these companies continues to look promising.

Over the short term, we are likely to see further volatility in the equity market. However, if you are a long term investor and believe in the long term growth prospects these companies have to offer, please refer to the funds in the UK All Companies Sector on our Wealth 150 list.

The Wealth 150 list also contains two funds that invest specifically in medium sized companies: Old Mutual UK Select Mid Cap and the Schroder UK Mid 250. Both funds are run by top rated managers and have exceptional long term track records, although please note past performance is not a guide to the future and the value of funds can fall as well as rise.

» Key Features of the Old Mutual UK Select Mid Cap fund
» Key features of the Schroder UK Mid 250 fund