Aberdeen Investments said that UK small cap companies yielded more than large caps last month for the first time in two decades “as smaller companies start to show similar attributes to the ones outperforming large caps had in 2025.”
Aberdeen said that examining the bottom 10% of the UK Main Market by market capitalisation, UK small caps were yielding 3.4% on average in January, compared to around 3% for UK large caps, with investor sentiment towards the UK market beginning to improve following a year of strong returns.
“Despite dampened sentiment last year, UK equities delivered a strong performance in 2025, with UK large caps one of the best‑performing major asset classes globally,” said Aberdeen.
“The FTSE 100 returned almost 26% over the year, outperforming both US and global equity markets, while the FTSE 250 also delivered a strong return of around 13%.”
Abby Glennie, manager of the Aberdeen UK Smaller Companies Growth Trust and Aberdeen UK Smaller Companies Fund, said: “UK small caps today share many of the same attributes that made large caps so compelling a year ago, but with potentially stronger growth characteristics.
“Valuations appear attractive, income is improving and the quality of businesses within the asset class is sometimes overlooked.
“UK smaller companies generate around half of their revenues overseas, spanning a wide range of geographies and business models, providing meaningful diversification beyond the domestic economy.
“At the same time, areas of the UK economy are showing resilience and recovery potential. Infrastructure‑related businesses, financials and support services are demonstrating strength, while housing‑related and consumer‑exposed companies offer scope for cyclical recovery.
“With a more stable economic backdrop emerging, the environment looks increasingly supportive for UK smaller companies.”
Aberdeen added: “A number of UK small caps are beginning to show characteristics similar to those that large cap stocks had in 2025, despite a significant difference in valuation. Valuations for UK smaller companies currently stand at a roughly 25% discount to large caps, a gap that is wide by historical standards.
“Income dynamics have shifted meaningfully for small caps, potentially broadening their appeal to income‑focused investors, while capital discipline is also increasingly evident among smaller companies.
“Around 100 companies in the FTSE 250 are now running active share buyback programmes, underscoring balance sheet strength and confidence in future prospects.
“As with large caps previously, allocations to UK small caps remain low, leaving room for renewed interest as performance improves.
“International buyers are also becoming more visible, particularly through direct stock holdings, suggesting that global investors are beginning to recognise the opportunity.”