Latest trust commentary

Market review

UK mid-sized companies underperformed the largest companies – reversing the performance of last quarter. Domestic and consumer-facing companies faced pressure as investors focused more on fiscal and political risk, and as a number of UK corporates issued cautious trading statements highlighting weaker end markets.

The Bank of England reduced the base rate by 25 basis points to 4% during the quarter. However, with inflation remaining persistent, hopes for further near-term policy easing were curtailed. The UK’s fiscal position also came under greater scrutiny ahead of the November budget. Recent downgrades to near term economic growth forecasts narrow the chancellor’s headroom against these targets, presenting a potential policy challenge in the months ahead.

Performance & activity

The fund outperformed the benchmark during the third quarter of 2025. Stock selection in the financials sector was most beneficial for relative outperformance with bulk annuities provider Just Group the highest individual contributor. It received a bid from Brookfield Wealth Solutions at a 75% premium to its closing price. Earlier in the year, the company reported solid earnings and double-digit profit growth, but its shares had weakened due to market volatility rather than fundamentals — a disconnect recognised by the acquirer. Technology company Kainos Group, which we bought last quarter, performed strongly. We invested following the return of the previously very successful Kainos “lifer” Brendan Mooney as CEO. We see the shares as undervalued, and underpinned by an ongoing £30m share buyback. Industrial Renishaw was also a positive contributor as it reported that profits would be at the top end of analysts’ expectations, alongside a general improvement in investor communication.

On the negative side, consumer discretionary name ME Group International’s share price continued to drift with no update on the potential sale of the company. Industrial Grafton Group also disappointed as the market awaits signs of recovery in its UK operations which are now less than 40% of profits, against the backdrop of an ongoing share buyback programme.

We sold our holding in luxury goods business Watches of Switerland preferring to switch into Frasers Group in that sector.  Frasers Group, whose portfolio spans sports retail, premium fashion and luxury brands, has interesting international and credit offering opportunities and is attractively valued. Consumer-facing stocks more generally remain out of favour, weighing on valuations and creating selective opportunities. While there are early signs of improvement in parts of the premium and luxury goods market, Frasers also offers growth potential through plans to expand its Sports Direct brand in Australia, New Zealand and the Gulf region. Another new name in the portfolio is life and pensions consolidator Chesnara, where we have invested some of the proceeds of our disposal of the Just group position.

Investment outlook

Economic data have been relatively noisy in Q3 and the government is likely to need to raise taxes in the Autumn Statement. Globally, macroeconomic uncertainty and geopolitical tensions remain elevated.

In this environment selectivity remains critical and investors need to focus on businesses with strong market positions, or those able to take market share, perhaps as a result of a disruptive technology. They need to be in a position to deliver growth as it’s not the time to simply buy shares because they are cheap. If there is one clear positive it may be that both UK corporate and consumer balance sheets are generally very strong.

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Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.

Fund risk considerations - Schroder UK Mid Cap Fund plc

Concentration risk: The company may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the company, both up or down, which may adversely impact the performance of the company.

Distribution risk: As a result of fees being charged to capital, the distributable income of the company may be higher but there is the potential that performance or capital value may be eroded.

Concentration risk: The fund may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the fund, both up or down.

Currency risk: The fund may lose value as a result of movements in foreign exchange rates, otherwise known as currency rates.

Gearing risk: The company may borrow money to make further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase by more than the cost of borrowing, or reduce returns if they fail to do so. In falling markets, the whole of the value in that investment could be lost, which would result in losses to the fund.

Liquidity risk: In difficult market conditions, the fund may not be able to sell a security for full value or at all. This could affect performance and could cause the fund to defer or suspend redemptions of its shares, meaning investors may not be able to have immediate access to their holdings.

Operational risk: Operational processes, including those related to the safekeeping of assets, may fail. This may result in losses to the fund.

Performance risk: Investment objectives express an intended result but there is no guarantee that such a result will be achieved. Depending on market conditions and the macro economic environment, investment objectives may become more difficult to achieve.

Counterparty risk: The fund may have contractual agreements with counterparties. If a counterparty is unable to fulfil their obligations, the sum that they owe to the fund may be lost in part or in whole.

Market risk: The value of investments can go up and down and an investor may not get back the amount initially invested.