I’ve wrestled with alligators,
I’ve tussled with a whale,
I done handcuffed lightning
And thrown thunder in jail.

What ranks as the finest comeback in the history of sport? There are many candidates, but perhaps the most celebrated is the epic road to redemption which culminated in Muhammad Ali reclaiming the world heavyweight crown.

Ali was controversially stripped of his titles in 1967. Returning to the ring after a three-and-a-half-year suspension, he lost a championship bout to Joe Frazier and then doggedly took on all-comers before at last earning another shot in 1974.

The legendary Rumble in the Jungle saw him face the fearsome George Foreman. A 4-1 underdog, Ali was pummelled for seven rounds but then sensationally sprang off the ropes to floor his exhausted opponent in the eighth. His performance more than lived up to his pre-fight poetry.

Tales of bruising encounters and a heroic resurgence must bring us, of course, to UK smaller companies. If this frequently unloved investment arena were a boxer, frankly, its cornerman could have been forgiven for throwing in the towel on several occasions in recent years.

The vote for Brexit sent UK smaller companies reeling. The ravages of the COVID-19 pandemic dealt further jarring blows. Near-relentless economic and political instability has threatened multiple visits to the canvas, often in the immediate aftermath of a plucky rally.

Given such a succession of tussles, would it be reasonable to say UK smaller companies are down? Well, they are certainly down in terms of pricing and popularity. Many are conspicuously cheap yet remain overlooked by the wider investment community.

But would it be reasonable to say they are well and truly out? Has the referee finally delivered a sympathetically swift 10-count and brought a merciful end to further punishment?

Having applied an ice pack or two during the past decade or so, I would say not. In my opinion, despite everything, an Ali-style “rope-a-dope” is significantly more likely than a career-ending KO.

In explaining why, it is first important to note a vital distinction – particularly in light of the fallout from the turmoil in Westminster of late. While there is obviously some overlap, the UK economy and the UK stock market – by which I mean both smaller companies and their larger counterparts – are not one and the same.

Granted, the former can influence the latter. At the very least, the state of the economy can shape how the market is perceived.

Yet the point is that any impact is highly unlikely to be uniform. Contingent on all sorts of factors, an individual business might be negatively affected, positively affected or not affected in the slightest by economic twists and turns.

It is therefore illogical to tar all companies with the same brush, irrespective of whether the bigger picture it paints is Stygian or stirring. Especially at the lower end of the market-capitalisation spectrum, investment appeal is frequently best determined not by the broader backdrop but by a given business’s specific attributes.

As remarked above, one attribute that has long characterised numerous UK small caps is a low rating. It could be argued that the earnings multiples of many promising companies, including several shining lights in their respective fields, are way short of where they deserve to be.

In my view, such a level of undervaluation – and, by extension, underappreciation – continues to give rise to attractive opportunities. In the US, by striking contrast, many stocks might be seen as overvalued, despite months of tariff tantrums, dollar weakness, AI-related volatility and concerns over the repercussions of military action in Iran.

Merger-and-acquisition activity among UK smaller companies, most notably those listed on AIM, has also been encouraging, with the early months of 2026 building on a strong 2025. Share buy-backs are in vogue, too, demonstrating that these businesses have plenty of confidence in their own prospects.

I am sometimes asked why my colleagues and I insist on clinging to these and similar considerations. I suppose the simple answer is that we are acutely aware of them – which is not a claim too many people can make.

The reality, after all, is that a lot of investors know little about UK smaller companies. This is usually because investment analysts tend to pay this sphere no heed, preferring instead to keep their collective gaze firmly fixed on US mega-cap tech titans and the like.

Our faith is rooted in our own in-depth research and direct engagement with businesses. In the spirit of contrarianism, we feel such an approach provides us with insights that most market participants do not have at their disposal.

I would not dare to predict that UK smaller companies will one day become the heavyweight champion of the investment world. Nor would I suggest they will eventually come to be seen as “The Greatest”.

Based on the resilience many have repeatedly shown, though, I do believe they have what boxing aficionados call “a good chin”. I also believe they have the capacity to go the distance. Above all, I believe they should be contenders in any sensibly diversified portfolio – which is why, with apologies to Ali, I leave you with the following…

I haven’t handcuffed lightning,
I haven’t thrown thunder in jail,
But that doesn’t mean I can’t argue
That UK small-caps will prevail.

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Eustace Santa Barbara is co-manager of the IFSL Marlborough Special Situations, UK Micro-Cap Growth and Nano-Cap Growth Funds.

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This article is provided for general information purposes only and should not be construed as personal financial advice to invest in any fund or product. These are the investment manager’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.

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