Should UK investors consider smaller company shares in 2026?
If you’ve got money sitting in a stocks and shares ISA or pension, a UK fund manager is suggesting it might be time to look at smaller British companies – an area that’s been left behind for a decade.
Matthew Tillett, who runs the Premier Miton UK Value Opportunities Fund, argues that after ten years of bigger company shares outperforming smaller ones, smaller UK firms now look like better value for money. It’s worth understanding what’s happened and whether this might affect your own investments.
Why have smaller companies underperformed?
Since the Brexit referendum in 2016, larger UK-listed companies have returned around 143%, compared to just 89% for smaller ones. That’s a significant gap. The main reason? Larger companies tend to have international operations, which benefited when the pound weakened by around 15% against the dollar. Smaller firms are typically more focused on the UK market, making them more vulnerable to domestic economic challenges and interest rate changes.
The economic data backs this up. From 2015 to 2025, smaller company earnings grew by 5.8% annually, compared to 7% for large-cap firms – not a huge difference, but enough to matter over ten years.
Is this a buying opportunity?
The argument being made is simple: after a decade of underperformance, smaller company shares are now cheaper relative to their earnings potential. If the UK economy stabilises and consumer confidence improves, these overlooked stocks could deliver stronger returns going forward.
However, this is not a guarantee. Smaller companies remain more volatile and more sensitive to economic downturns than their larger peers.
What should you do?
If you’re investing through an ISA or pension, don’t panic and rush to move everything into smaller company funds. Instead, consider whether your current portfolio is too heavily weighted towards large-cap shares. A balanced approach – mixing large and small company exposure – often makes sense for long-term investors.
Speak to a financial adviser if you’re unsure, or review your current holdings to check your exposure. Your pension provider or ISA platform can show you exactly what you’re invested in.