It had promised to be a slightly better year for UK stocks focused, following the Conservative party’s comprehensive victory and greater certainty it provided over Brexit.
But all of this has been undone due to the impact of the coronavirus outbreak which has caused global markets to sell-off as governments have ordered people indoors and economies have ground to a halt.
However, it’s been companies toward the lower end of the market cap scale that have suffered as the coronavirus has taken hold and started to impact markets.
As the below chart shows, the blue-chip FTSE 100 index fell by just 23.84 per cent during the opening quarter of the month.
However, the mid-cap FTSE 250 index was down by 30.72 per cent and the Numis Smaller Companies plus AIM (excluding investment companies) benchmark lost 32.60 per cent, both recording their worst quarterly showing in recent memory.
Performance of indices in Q1 2020
Source: FE Analytics
Whilst UK authorities have announced extraordinary measures to combat the economic impact of the coronavirus on smaller companies, Trustnet asked several fund managers if these go far enough during one of the most challenging times in recent memory.
Ken Wotton(pictured), co-manager of the £238.1m LF Gresham House UK Micro Cap fund, said that all hope is not lost for UK small caps, at least over the long run. 
“While there remains significant scepticism, at some point, investors will return to equity markets,” he explained. “When this occurs, the UK could be set for particular attention, as UK stocks still trade at a relative discount to other developed markets.”
Indeed, in the micro-cap space that Wotton focuses on companies are trading at a 20 per cent discount, he said, evidence of just how unloved they are currently.
But this could end up benefiting UK stockpickers once the coronavirus crisis has abated Wotton said as they could provide cheap, attractive entry points to valuable companies.
“With double and triple discounts, small and micro caps will undoubtedly pique the interest of corporate buyers and private equity investors,” the LF Gresham House UK Micro Cap fund manager explained. “Companies with sound fundamentals are available for purchase at attractive prices – and, for foreign investors, at a favourable exchange rate.”
One of his micro-cap peers, Richard Power – head of Quoted Smaller Companies at Octopus Investments and manager of the £33.2m FP Octopus UK Microcap Growth fund – agreed, adding that coronavirus will only have a short-term negative impact on UK smaller companies.
“We remain of the belief that this will only have a short-term impact on the smaller companies sector,” he said. “Investors may well be feeling risk-averse right now, but quoted smaller companies will resume the growth path they were on in due course.”
Investing in companies with a market cap below £100m, Power invests 75 per cent of the portfolio in ‘established leaders’ – companies with strong track records and management that should continue performing well in a downturn.
“Smaller companies are arguably more adaptable to these situations,” Power said, “and as long as they went into this with an appropriate capital structure and supportive shareholders then they should emerge with long term prospects unscathed.”
Regarding his own his FP Octopus UK Microcap Growth fund Power said that he was not making “any specific sector changes”.
“We came into the crisis with a relatively high cash balance, and have been committing more funds to companies we have known well for a long time, and whose share prices have hit very attractive levels on a 12-month view and companies we believe to be particularly well placed to continue to grow in the current conditions,” he said.
But are measures designed to shore up the UK’s smaller businesses enough to help them in the long term?
“Unprecedented times call for extreme action,” Philip Harris (pictured), manager of the five FE fundinfo Crown rated EdenTree UK Equity Growth fund, said. “And the Chancellor’s recent announcements have laid out the foundations for substantial measures to stabilise the economy, the likes of which have never been seen in peacetime.” 
Harris said that further measures will probably have to be put in place as the lockdown is extended and the true impact of the virus is revealed.
For any company the coming months are “all about survival,” Harris said, and could lead to some cancelling their dividends to cope.
Dan Harlow, portfolio manager of the £155.4m AXA Framlington UK Smaller Cos funds, added that companies now need to be making sure that their business will be able to reopen once the lockdown has lifted.
“With zero visibility on earnings outlook for the year, businesses are in cash conservation mode,” he explained. “The primary motivation and rationale behind management behaviour is ensuring that they have a business to return to once the pandemic passes.
“To ensure this is possible, all market participants are working hard providing policy support and financial flexibility to counter the dramatic impact this black swan event is having.”
But whilst the measures have been well-received by companies themselves Gresham House’s Wotton adds that markets appear somewhat indifferent to the news.
“Almost zero [per cent] interest rates and measures to inject liquidity into the system are welcome support but have been greeted with a shrug from financial markets,” Wotton said.
“There are limited monetary levers remaining,” he added, noting that whilst giving direct support to business is “potentially hugely significant” the key to its success will be how quickly it is enacted.