Why growth investors could consider UK small caps

UK small caps are lagging behind larger counterparts, both domestically and overseas, in terms of their valuations. But their growth prospects are stronger than ever.

Their smaller size may mean these growth stocks are rarely among the top stock picks for DIY investors, but this unloved sector could be set to rebound.

For a start, UK stocks look historically undervalued across the board. Tom Grady, value fund manager at Schroders, explains that UK stocks have historically traded at a 20% discount to US counterparts in terms of their average price to earnings (PE) ratio, but that this has widened to over 40% in recent years.