Standard Life Investments' director of UK equities,Thomas Moore, said while the FTSE 100 Index may appear cheaper than the FTSE Mid-250 Index, this relates to its “significant mining, oil and financial exposure, where underperformance has subdued valuations, dragging index metrics lower”.
“Excluding these sectors, large-caps remain more expensive, yet mid-caps are where the best fundamental earnings trends can still be found,” said Mr Moore.
Engineering consultancy company WS Atkins is a good example of this, he said.
“Involved in the planning and design of major infrastructure projects, the business is at the leading edge of the economic recovery," he said.
“With high operating leverage and volumes picking up across its key UK, US and Middle East markets, its growth trajectory is strengthening.”
Mr Moore believes that specialist finance firm Close Brothers is also well placed, with reduced lending competition supporting loan growth and its asset management and securities divisions also making positive contributions.
He noted that while mid-caps in aggregate have generated stronger earnings fundamentals, this does not mean large-caps are to be completely avoided.
“From our bottom-up perspective, opportunities can be found right across the market, including large-caps,” he said.
Standard Life chief economist Jeremy Lawson said in the Standard Life Investments Global Outlook for the third quarter that among the world’s largest economies, “only the UK is really going from strength to strength”.
Mr Lawson said UK household wealth is being boosted by rising house prices and equity markets.
“Key business cycle indicators are also turning up – for example, consumer spending on motor vehicles and other consumer durables is rising solidly,” he said.
Business equipment investment, a key driver of long-term productivity growth, has also turned the corner, he added.
“Just as importantly, labour markets are continuing to heal – unemployment has fallen decisively over the past 18 months and real wage growth is finally starting to rise,” Mr Lawson said.
“As long as the Federal Reserve and the Bank of England are able to exit gradually from their emergency policy settings without disrupting the recovery, the seeds of a virtuous cycle are being sewn.”
