The post-Buffett era is an opportunity for UK small caps
Undervalued, small UK companies are ripe for Warren Buffett-style investing, says Edmund Hill-Smith
Warren Buffett’s decision to step down as CEO of Berkshire Hathaway marks a historic turning point, not just for the company, but for global capital allocation more broadly. For over six decades, Buffett’s disciplined, value-oriented approach has steered billions into what he famously called “wonderful businesses at fair prices”. His influence has extended far beyond Omaha — shaping institutional capital flows and investor behaviour across the developed world.
But as Greg Abel steps into the CEO role, global equity markets are entering a new era. One that’s likely to see capital flows recalibrated toward operational efficiency, regional diversification and, most importantly, underappreciated value. Dempster Mill manufacturing company is a classic example of Buffett’s deep value investing style and one that illustrates his early interest in small cap investing in so called “cigar-butts”.
Just as Buffett’s nascent approach to investing uncovered hidden value in overlooked industrial assets early on in his career, today’s investors have a similar opportunity to rediscover compelling value in less-followed corners of the market. And there is no area more overlooked right now than UK small cap equities. Despite strong fundamentals, many UK small companies trade at significant discounts to their net asset values — a dislocation that remains unresolved since the Brexit referendum. As highlighted in recent comparative analysis (source: Bloomberg, Odey Capital Management), UK small caps currently exhibit a price/book ratio of just 1.00, far below both the S&P 500 (3.60) and MSCI World Index (3.60). This gap is not just statistically striking — it’s historically anomalous.
Compare that to pre-Brexit, when UK small caps traded roughly in line with European and global benchmarks. Since then, the divergence has only grown — driven less by company performance and more by persistent political uncertainty, macro pessimism and international investor neglect.
The return of value investing
This inefficiency presents a rare opportunity. With value investing poised for a renaissance in the wake of elevated interest rates, tighter liquidity conditions and US economic uncertainty, undervalued UK small caps are ideally positioned to attract incremental capital. In fact, the post-Buffett landscape may catalyse this shift. Berkshire’s traditionally US-centric investments may even evolve under Abel’s leadership in light of the current tariff induced investment uncertainty, reflecting a broader appetite for operationally-driven returns across diverse geographies.
Europe, and the UK in particular, offers fertile ground for such capital redeployment. UK small caps remain under-owned, unloved, and materially mispriced. The evidence shows that UK small companies trade at a discount not only to global indices but also to European small cap and UK large cap counterparts. This is especially compelling when you consider that many of these businesses generate resilient earnings, benefit from founder-led leadership, and operate in niche markets with high barriers to entry.
This represents a genuine margin of safety. Now represents the ideal opportunity to actively allocate capital to select UK small cap opportunities, using bottom-up analysis to identify companies where market pessimism has obscured intrinsic value. With Berkshire’s leadership transition potentially symbolising a broader generational shift in investment thinking, there’s never been a better time to revisit parts of the market that others have left behind. As the post-Buffett era begins, investors would do well to look beyond the obvious. After all, sometimes, the best value is where others aren’t looking — and right now, that’s UK small caps.
Edmund Hill-Smith is director of investments at GPIM Limited