The iShares MSCI United Kingdom Small-Cap ETF is, as the name suggests, designed to track the investment performance of an index that contains small-sized companies within the United Kingdom. This ETF provides exposure to the dynamic and potentially high-growth sector of the UK market.
iShares MSCI United Kingdom Small-Cap ETF Chart
Unlike its counterpart the iShares MSCI United Kingdom ETF counterpart, this ETF concentrates on smaller, emerging companies across a variety of sectors, including industrials, consumer discretionary, and financials. The top two sectors are financials and industrials. If the conditions are right, smaller companies often exhibit greater growth potential, although they also carry higher volatility and risk.
The ETF currently holds 222 stocks, with the top 10 holdings taking up 17.56% of the index, as of December 31, 2024. The fund was launched in January 2012.
iShares MSCI United Kingdom Small-Cap ETF Performance
After the lows during the Covid-19 pandemic, the ETF soared. However, it turned around sharply in September 2021, and while it edged slowly higher between 2022 and September 2024, a more recent pullback has taken place, weighing on the ETF so far in 2025.
| Period | Performance (as of February 2025) |
|---|---|
| Year-to-date Performance | +1.38% |
| 1-Year Performance | +9.13 |
| 3-Year Performance | -3.10% |
| 5-Year Performance | -0.73% |
iShares MSCI United Kingdom Small-Cap ETF Top 10 Companies
| Company | Weight (% as of February 27, 2025) |
|---|---|
| Intermediate Capital Group | 2.28% |
| Diploma | 2.06% |
| St James’s Place | 2.05% |
| Weir Group | 2.03% |
| Beazley | 1.88% |
| Rightmove | 1.74% |
| IMI | 1.66% |
| Games Workshop | 1.61% |
| Howden Joinery | 1.49% |
| Convatec | 1.46% |
iShares MSCI United Kingdom Small-Cap Forecast
The Bull Argument: In an article released in December 2024, Abrdn Investments outlined three reasons it believes investors should consider smaller UK companies. Firstly, the firm highlighted the attractive valuations, stating that while small-caps usually trade at a premium, the UK small-cap premium is “far below historic averages.”
“Comparing the MSCI UK Small Cap Index with the MSCI UK Index (which covers large and mid-caps), we found that the former is trading at a 13% premium valuation, using a 12-month forward price-to-earnings ratio to the end of October,” said the firm. Furthermore, they highlighted the earnings growth potential in the group, noting that companies in the MSCI UK Small Cap Index are forecast to grow their earnings by 17.4% in 2025. Finally, Abrdn also said “UK small caps have historically outperformed the FTSE 100 following interest rate cuts.” They believe a UK interest rate cutting cycle could be a “boon for this segment.”
The Bear Argument: Of course, not everyone feels the same as Abrdn. New Financial said in an October 2024 report that “many of the challenges facing smaller companies are common across the wider market: stemming the exodus of pensions from UK equities; re-engaging retail investors; resetting risk culture and the balance between risk, growth, and stability; or addressing governance and regulatory hurdles.”
Meanwhile, from a more general perspective, investors should consider that small-cap stocks are inherently more volatile and susceptible to economic downturns, while they can also be more affected by changes in consumer spending and business sentiment. The UK’s economic uncertainties, including potential trade disruptions and regulatory changes, can disproportionately impact smaller companies.
Our View: The iShares MSCI United Kingdom Small-Cap ETF presents an opportunity to participate in the growth potential of the UK’s smaller companies. However, whether that growth will come around for many of the names in the index and other UK small-cap stocks is another question. While we like various stocks within the ETF, we believe it may be more beneficial to first keep an eye on the macroeconomic, regulatory and political updates in the UK, as any changes could significantly impact the market over the long-term, whether that is for the better or for the worse.
Who Should Invest in UK Small-Cap Stocks
Overall, the iShares MSCI United Kingdom Small-Cap ETF and UK small-caps in general are particularly suited for:
Growth-Oriented Investors: Those seeking high-growth potential and willing to accept higher volatility and risk.
Diversification Seekers: Investors looking to add a small-cap component to their portfolio for enhanced diversification.
Long-Term Investors: Individuals with a long investment horizon who can weather short-term fluctuations.
UK Small-Cap Believers: Those who are optimistic about the future of UK small-cap companies and their ability to innovate and grow.
UK Economic Bulls: Investors that believe the economic situation in the UK will improve and boost UK businesses.
Risk Tolerant Investors: Those who understand and are comfortable with the increased risks associated with small-cap investing.
