Schroder UK Mid Cap Fund Delivers Strong Outperformance in 2025 Results

Schroder UK Mid Cap Fund 2025 Results: Outperformance, Higher Dividends, Narrower Discount

Schroder UK Mid Cap Fund PLC has released a strong set of annual results for the year ended 30 September 2025. In short: performance beat the benchmark, the dividend is up again, and the shares re-rated as the discount narrowed. For a UK mid cap specialist, this is the kind of year you want to see.

Key metric	2025 outcome	Context
NAV total return	10.8%	FTSE 250 ex IT total return: 6.7%
Share price total return	18.0%	Discount narrowed on stronger performance and Board actions
Total dividend	22.4p per share	Final 16.1p; interim 6.3p; up 4.2% year-on-year
Dividend yield	3.4%	Based on 666p share price (25 Nov 2025)
Discount to NAV	7.0%	Improved from 12.3% at prior year-end
Gearing	4.8%	£17 million drawn on RCF
NAV per share	754.45p	Up from 702.60p
Net assets	£258.9 million	£258,870,000 at year-end

Performance vs FTSE 250: Where the Alpha Came From

The fund’s NAV total return of 10.8% comfortably outpaced the FTSE 250 ex Investment Trusts total return of 6.7%. The share price did even better, up 18.0%, thanks to discount narrowing. That re-rating usually signals investors’ confidence in the strategy and the Board’s shareholder-friendly moves.

What worked? Industrials were the standout, particularly an increased overweight to aerospace and defence. That sector has seen a structural lift as European defence budgets reset higher and long-term contracts underpin earnings visibility.

Top contributors and detractors

• Winners: Chemring (+1.6% relative impact), Spectris (+1.4%), Babcock International (+1.3%), Just Group (+1.3%), Games Workshop (+1.0%).
• Detractors: 4imprint (-0.7%), Trustpilot (-0.5%), Ibstock (-0.5%), Future (-0.5%), Johnson Matthey (-0.5%).

M&A also helped. Spectris drew a two-way private equity bidding war before agreeing to KKR at close to a 100% premium. Just Group agreed to a takeover by Brookfield Wealth Solutions at a 75% premium. Those are big premiums and a timely reminder of how bid activity can crystallise value in UK mid caps.

Dividends: Up Again and Fully Covered

The Board declared a final dividend of 16.1p per share, taking the total for the year to 22.4p. That is a 4.2% increase on last year and is covered by current-year earnings. At a 666p share price on 25 November 2025, that’s a 3.4% yield.

Dates to note: the final dividend is subject to AGM approval, with payment due on 27 February 2026 to shareholders on the register as at 30 January 2026.

Discount Narrowing and Buybacks: Why the Share Price Outperformed

The discount to NAV tightened from 12.3% to 7.0%. The Board used its buyback authority to purchase 269,000 shares into treasury during the year, and a further 406,500 post year-end. That kind of supply discipline supports the share rating and complements performance-led discount narrowing. The authority to repurchase up to 14.99% of issued capital remains in place.

In my view, the combination of performance, buybacks, and fee cuts (more below) is exactly what helps narrow discounts sustainably.

Fees, Gearing and Structure: Sharper Alignment With Shareholders

• Management fee reduction: from 1 April 2025, the fee is the lower of 0.60% of market capitalisation or the existing NAV-based fee. This is progressive and aligns incentives with closing the discount.
• Continuation vote: introduced for the 2028 AGM and, if passed, every three years thereafter. A good governance safeguard.
• Gearing: 4.8% at year-end with £17 million drawn on a £30 million revolving credit facility expiring February 2026. Sensible headroom and flexibility.

Portfolio Moves: New Names, Realisations and a FTSE 100 Exit

New positions included Hill & Smith and Kier (both in the ‘flex’ bucket), Frasers Group, and Kainos. The logic is varied: exposure to US and global infrastructure (Hill & Smith), a cyclical upturn and capacity-constrained UK construction (Kier), international growth options in retail (Frasers), and a leadership reset at Kainos.

Sales included WH Smith (after the high street disposal at a disappointing price), Oxford Instruments (management change), Energean (rising geopolitical risk after a strong run), and Babcock International following its promotion back to the FTSE 100 – consistent with the mid-cap mandate. The team also flagged attractive valuation support at SSP Group, noting the implied under 2.0x EV/EBITDA multiple of its Indian JV TFS based on a £1.5 billion market cap.

Macro Backdrop: Valuation Gap and M&A Tailwinds

Despite the FTSE 100 outpacing the FTSE 250 over the year (17.5% vs 6.7%), the gap has left mid caps looking compelling. Mid caps now yield roughly 1.0% more than large caps – unusual and supportive for valuation. Mid cap dividend growth also ran ahead in Q3 2025.

M&A has been brisk: around 10% of the Mid 250 by value was acquired in 2024, with momentum continuing into 2025. Overseas buyers are active, while domestic investors have been net sellers – a setup that can favour patient, active managers.

What This Means for Investors

• Positive: Consistent outperformance vs the benchmark at 1, 3 and 10 years; discount narrowing; dividend growth; and a fee structure that now rewards share price re-rating as well as NAV growth.
• Risks: Defence exposure has worked but is tied to geopolitics; continued volatility around UK policy and rates; and the discount can widen in risk-off markets despite buybacks.
• Opportunity: A wide valuation gap between large and mid caps, higher mid cap yields, and ongoing M&A interest provide multiple paths to value realisation.

Overall, this is a high-quality update. The strategy is clear, governance has strengthened, and capital allocation looks disciplined. If UK mid caps continue to re-rate, this trust is well placed to benefit.

Dates, Links and How to Engage

• Investor webinar: Tuesday, 13 January 2026 at 9.00 am. Register at https://www.schroders.events/SCPFY25.
• AGM: Wednesday, 25 February 2026 at 12.00 pm, 1 London Wall Place, London, EC2Y 5AU.
• Subscribe for updates: https://schro.link/scp_subscriber

Quick Reference: Financial Highlights

• Total return per share: 73.18p (Revenue: 25.03p; Capital: 48.15p).
• Revenue return: £8.648 million; Capital return: £16.639 million; Total return: £25.287 million.
• Management fee: £1.520 million; Administrative expenses: £0.827 million.
• Shares in issue (ex-treasury): 34,312,190; Treasury shares: 1,831,500.
• Loan facility: £30 million RCF (Scotiabank), expiry February 2026.

Final Take

This is what good active mid-cap investing looks like: decisive positioning, disciplined capital actions, and a Board leaning into alignment. The fund’s blend of quality, cash generation and selective cyclicals has delivered. Keep an eye on the continuation vote timetable, the RCF renewal in early 2026, and whether the mid cap valuation gap keeps closing. If it does, the share price can keep doing more than its fair share of the lifting.