Investing.com — The has outperformed the by 530 basis points in total return since J.P. Morgan upgraded UK small- and mid-cap stocks to “overweight” within Pan-Europe on June 5, validating the bank’s call, helped by UK real GDP growth being revised up to 1.2% from 0.8% at the start of the year while the eurozone’s fell to 0.8% from 1.3%.
Sticking to the “overweight” view, J.P. Morgan strategist Eduardo Lecubarri on Friday added four new long positions to the bank’s SMid Strategy Model Portfolio: , , , and , the last of which is not covered by the bank’s sector analysts.
The 530 bps gain for the FTSE 250, measured in euros as of the close of business on August 4, stands against a 6% price return for the FTSE 250 versus just 1.5% for the MSCI Europe ex-UK Small Cap index over the same period, according to J.P. Morgan data.
The structural case rests on an unprecedented decade of underperformance since the Brexit referendum of June 23, 2016. Since that date, the MSCI Europe ex-UK Small Cap index has delivered a total return of 145%, exactly twice the FTSE 250’s 72%.
As a result, UK SMid-Caps now trade below their continental peers on all valuation metrics except PEG, and below their own historical averages, a reversal from a history in which they traded at a premium on most measures.
On EV/EBITDA, UK SMids currently trade at 8.76x against a historical average of 8.93x and a historical peak of 14.42x; continental peers trade at 10.11x. FCF yield on UK SMids stands at 7.3%, against a historical average of 3.4%.
Actively managed UK SMid funds have suffered outflows every year since 2016, intensifying since 2022 and having lost more than 50% of their assets under management in the process, JPM said.
“There are a few trades where we can find conviction at the moment,” Lecubarri wrote, “and one of those is our June 5th upgrade of UK SMid-Caps to OW within Pan-Europe.”
On earnings expectations, JPM said 2026 consensus EPS growth estimates for UK SMids stand at 13.2%, against a start-of-year estimate of 18.6%, a more achievable bar.
By contrast, current estimates call for continental European SMid EPS growth to be four times higher than last year’s actual, a disparity the bank said will likely be revised down meaningfully.
Oil dependence reinforces the relative case: UK oil imports as a percentage of total consumption stand at 44% versus 91% for the continent, JPM noted, at a time when the average year-to-date is $87, approximately 30% above last year’s average of $68. has risen 92.3% year-to-date.
On the four new longs, JPM analyst Jane Sparrow, who rates Bunzl “overweight” with a 7% upside to price target, pointed to the company’s H1 2026 pre-close in which underlying revenue growth beat consensus estimates and FY26 revenue guidance was upgraded, with North American volume growth and balance sheet capacity for mergers and acquisitions expected to drive a re-rating. “We do not believe the model is broken,” Sparrow wrote.
David Adlington, who rates ConvaTec “overweight” with 31% upside to his price target, cited the company’s consistent mid-single-digit top-line growth and average annual margin expansion of 100 basis points over the past five years.
With an ongoing $200 million share buyback expected to complete by year-end and the stock trading at 14x JPM’s FY27 price-to-earnings estimate, Adlington said FY26 is “largely de-risked.”
Chitrita Sinha rates Genuit “overweight” and sees more than 50% upside. The company targets 2% to 4% growth outperformance versus end markets through regulatory tailwinds including AMP8, the Warm Homes Plan, and Future Homes Standards, and a 20%-plus adjusted operating profit margin.
On Breedon, not covered by JPM’s sector analysts, the bank cited a three-platform model across Great Britain, Ireland, and the United States, with the Irish and U.S. divisions described as higher-margin, and infrastructure spending catalysts from RIS3 and CBAM tailwinds.