In late 2021, in response to persistently high inflation that followed the post-pandemic reopening of the global economy, bond markets determined that more than a decade of ultra-loose monetary policy was to end.
The yield on two-year gilts — the most sensitive to future movements in UK borrowing costs — started to move higher, bringing with it a significant and prolonged rotation away from growth equities.
The 2022 Russian invasion of Ukraine added a further inflationary pulse that extended the cycle. Many markets, both public and private, saw sustained falls as company valuations compressed. However, the impact was particularly acute on the Aim, which recorded a peak to trough decline of 50 per cent before bottoming on April 7 2025.
Alternatives to the US equity market
Last year, with political risk increasing and valuations stretched, investors looked for alternatives to US equities. UK markets, largely ignored by asset allocators and significantly undervalued both relative to historical norms and other international markets, were now viewed through a different and more positive lens.
The renewed interest drove the FTSE 100 index to new highs in February. The improved tone within London filtered down to its junior markets, with the FTSE Aim All-Share and the FTSE UK Small Cap index posting gains of 18.6 per cent and 26.9 per cent respectively in the 12 months to February 28 2026.
Hidden gems in growth markets
So, is it time for investors to revisit the opportunity? Our fund management team holds more than 2,000 meetings with UK companies annually, mostly small companies. Many are listed on Aim.
Whilst commentators are understandably critical of the government’s current fiscal policy and its impact on valuable industries such as hospitality and leisure, we find that other parts of the UK’s innovation economy such as life sciences, defence and technology remain vibrant.
Founders and business leaders are as committed as ever to developing new leading products and services. And while Aim has faced cyclical challenges, many of these innovative companies can still be found on London’s junior stock market.
The UK continues to produce innovative, ambitious and high growth companies.
Many UK growth companies continue to trade well — as they should. If a company is developing novel AI-powered technology for healthcare, success is determined by access to capital, effective research and development and strong execution. For companies underpinned by technology and innovation, long-term outcomes should not be heavily influenced by the state of the UK economy.
There is value on offer, too. The re-rating that has happened with the UK’s larger listed companies is yet to fully permeate through to the bottom end of the market; Aim continues to trade on a very attractive 39 per cent discount (as at February 9 2026) to its long-term earnings multiple.
Overseas buyers take the opportunity, while investors lose out
Value arbitrages do not last forever. While in recent times investors have not acted on the value opportunity in UK equity markets, strategic buyers have. Record levels of merger and acquisition activity confirms that the UK continues to develop exciting companies.
It also highlights how we continue to misprice growth in this country.
UK investors should follow the lead and back these future success stories and bring to a close the loss of ownership and value to private equity or overseas buyers.
Underfunding undermines the UK
Our growth companies will always search for capital. If we don’t provide it from within the UK, they will look for it elsewhere and the UK will continue to cede sovereignty of domestically generated IP to overseas investors.
With less capital available, the UK will not retain talent, will undertake less research, reduce investment and defer the creation of skilled employment. Over time, this also impacts the UK’s public markets. A strong and well-funded growth ecosystem that recognises the true value of our UK champions is essential if we want to generate the next generation of successes on the UK public markets.
Aim high
Activity levels in the UK’s primary markets (IPOs) are improving but remain weak. Should companies, who have shied away from London, reconsider a listing? Can Aim thrive again as Europe’s most successful growth exchange? We think so.
Since its inception, Aim has supported more than 4,000 companies in raising nearly £136bn, fuelling business expansion, job creation and innovation across the UK. Many of the drivers that fuelled the first 30-years of success remain in place.
The benefits of a listing hold as true today as ever: access to capital, liquidity, a diversity of shareholders and public profile. However, more than four years of retail outflows from UK small companies have weighed heavily on the availability and cost of capital. But these are cyclical factors that can correct in time.
Backing Britain
Investors in search of growth and value need look no further than London’s junior markets, which offer both in abundance.
Allocating here offers opportunities for value creation for those who are comfortable with the risk and are able to commit for the medium term. It also offers investors the opportunity to provide support to the UK’s founders and chief executives as they seek to turn today’s ideas into tomorrow’s successes.
Oliver Bedford is lead manager at Hargreave Hale AIM VCT