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Montanaro UK Smaller Companies – High growth, bigger yield

Montanaro UK Smaller Companies (MTU) has adopted a new enhanced dividend policy, paying out 1.5% of NAV every quarter. This will make it one of the highest-yielding UK equity strategies on the market. For traditional equity income investors, whose portfolios tend to be tilted towards more value-focused cash-generative stocks, MTU’s combination of a high dividend yield and a strong focus on quality growth stocks differentiates it from peers.

UK equities were cheap relative to their history and to developed market peers prior to the tariff-related sell off; now they are even cheaper. In addition, the quality-growth small-cap stocks in which MTU invests have been out of vogue recently, with the market favouring large-cap value.

As MTU’s manager Charles Montanaro points out, the historic valuation gap provides investors with an attractive entry point. History has shown that buying stocks on these sorts of valuations can produce attractive long-term returns, and the magnitude of the UK’s discount opportunity may be a catalyst for its own reversal.