Schroder UK Mid Cap Fund Delivers Strong Outperformance in 2025 Results

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.