UK investors have been increasing their portfolio allocations to small and mid-cap equities, as they seek to find the ‘winners’ in an uncertain investment environment, according to a report from Janus Henderson.

The firm’s Portfolio Construction and Strategy (PCS) team analysed 1,229 portfolios across two six-month periods: March-August 2024 (previous) and September 2024-February 2025 (current).

They found that the percentage of total equity allocations to small caps increased from 8 per cent in the previous period to 9 per cent in the current period, while mid-cap allocations rose from 22 per cent to 23 per cent.

Meanwhile, equity allocations to large caps declined from 70 per cent to 68 per cent over the same timeframe.

“Over the past 12 months, a supportive economic backdrop encouraged clients to start pivoting their focus towards smaller capitalisation companies, shifting away from the previously dominant mega-cap technology giants,” the PCS team noted.

Janus Henderson head of portfolio construction and strategy, EMEA & APAC, Matthew Bullock, added: “Investors are starting to become more cautious when positioning their portfolios…but have also been allocating to small cap equities suggesting a desire to find the ‘winners’ amongst the uncertainty.”

General investor sentiment reflected cautious optimism in 2024, according to the report, with investors following a balanced approach.

While investors had been expressing a “strong sentiment” to remain cautious, allocations to equities increased slightly, from 54.3 per cent in the previous period to 56.9 per cent in the current period, largely funded by multi-asset funds.

The average portfolio allocation to multi-asset funds fell from 6.6 per cent to 4.7 per cent, while allocations to fixed income and alternatives remained relatively stable.

UK investors’ percentage of total equity allocations to those based in the US decreased from 45 per cent to 41 per cent, while allocations to UK equities rose from 19 per cent to 21 per cent.

Janus Henderson noted that UK investors’ ‘home bias’ to UK equities remained and stayed significantly overweight compared to global equity market caps.

Looking at other asset classes, the PCS team commented: “UK portfolios kept their allocation in high-quality fixed income, despite recent volatility and surging yields, following stickier inflation, uncertainty around Trump policies, the Autumn Budget, and lower UK growth expectations.

“Amid a sustained equity bull run in 2023 and 2024, clients have scaled back on liquid alternative investments within their portfolios. Meanwhile, low-cost index or passive funds remained popular."

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