The FTSE All-Share had an exceptional 2025 with the market rallying by 24%, but this recovery still has a long way to run, according to Anthony Leatha, head of investment companies research at Peel Hunt.<\/p>\n
This headline rise masks significant dispersion within the index, as larger companies led the way, but more domestically sensitive small and mid-caps were hampered by volatility at home. For example, the FTSE 250 was up just 13%, and the Deutsche Numis Smaller Companies ex investment companies were up 12.7% by comparison last year.<\/p>\n
See also: FTSE 100 continues surge into record territory as US markets face another AI wobble<\/a><\/p>\n \u201cIt can still be very hard to form a bullish outlook on the UK stockmarket, let alone the economy,\u201d Leatham noted.<\/p>\n \u201cThe UK market appears to be at an inflection point, following the disruption of high inflation and rising interest rates. Valuations, particularly further down the market cap spectrum, are undemanding and cheap relative to other developed markets, in our view, and M&A continues to be a feature.\u201d<\/p>\n This will provide a supportive backdrop for a sustained rally in mid-cap and small-caps, according to Leatham. To play on this, the team favours a \u201cbasket\u201d of three UK investment trusts: Fidelity Special Values, Mercantile Investment Trust, and Aberforth UK Smaller Companies.<\/p>\n Fidelity Special Values<\/p>\n Fidelity\u2019s contrarian all-cap focus pairs well with Mercantile\u2019s quality and mid-cap emphasis, while Aberforth stands out for its focus on the value end of the small-cap market, Leatham said.<\/p>\n \u201cIn aggregate, this creates a basket with probably a mid- and small-cap bias, a slight value bias and a high sensitivity to any further recovery.<\/p>\n \u201cIt\u2019s not an equally balanced portfolio, but together they tick a lot of boxes and make for a good way of playing on the UK market.\u201d<\/p>\n He praised Fidelity Special Values manager Alex Wright<\/a> for his \u201cquite contrarian\u201d approach, with a focus on under-researched small and mid-caps.<\/p>\n The FTSE 250 represents 36.5% of the asset allocation, and the FTSE Small Cap represents 9.2%, which are overweights compared to the FTSE All Share. Meanwhile, FTSE 100 companies represent 41.9% of the portfolio, a relative 45.7% underweight compared to the index.<\/p>\n \u201cFSV has proven its capability to outperform the FTSE All-Share benchmark through various market conditions, and the actively managed, contrarian portfolio provides access to a recovery in UK equities.\u201d<\/p>\n See also: Fidelity\u2019s Alex Wright: Catalyst for UK equity outperformance has already happened<\/a><\/p>\n According to FE Analytics, Fidelity Special Values has been the top trust in the IT UK All Companies sector over the past one, three, five and 10 years. Leatham added that on a NAV basis, it has even beaten the US Nasdaq over the past five years (111% vs 100%).<\/p>\n