IA changes Smaller Companies sectors definitions

For immediate release: 22 April 2024

The Investment Association (IA) has concluded the review of its Smaller Companies sectors.  The review looked across the UK, European, North American and Japanese Smaller Companies sectors. As part of the review, the threshold used to define a smaller company was examined to ensure that the sector definitions align with current market practice. Following the review, and in consultation with IA members and the Sectors Committee, the IA is changing the definitions of the UK Smaller Companies sector and the European Smaller Companies sector. The changes to the sector definitions will come into force from 31 August 2024: 

  • The UK Smaller Companies sector definition will change to require funds to hold at least 80% of assets in the smallest 15% of UK company shares by market capitalisation.  This is a change from the smallest 10% by market capitalisation.  

  • The European Smaller Companies sector will move to require funds to invest in European equities from the smallest 30% of the European market’s capitalisation, changing from the previous smallest 20% market capitalisation cut-off.   

  • The Japanese Smaller Companies sector, which had fallen below ten funds, closed on 30 September 2023. Funds in this sector have been reclassified to the Japan sector. 

  • A review of the North American Smaller Companies sector found that no change to the sector definition is necessary. 

Miranda Seath, Director, Market Insight & Fund Sectors at the Investment Association, said:  

“We continually assess our fund sectors to ensure that they are aligned with evolving approaches to investing. It is important to acknowledge that market practice has changed since the IA's Smaller Companies sectors were originally created in 2003. The new definitions better reflect the way that fund managers define ‘smaller’ companies, assisting investors and their advisers in finding like-for-like funds when taking investment decisions.” 



Notes to editors 

UK Smaller Companies sector definition (from 31.08.24) 
Funds which invest at least 80% of their assets in UK equities of companies which form the smallest 15% by market capitalisation. The universe of eligible UK equities is constructed by the monitoring company and comprises all relevant securities available from their database from which a market capitalisation cut-off is derived each month.  


European Smaller Companies sector definition (from 31.08.24) 

Funds which invest at least 80% of their assets in European equities of companies which form the smallest 30% by market capitalisation in the European market. They may include UK equities, but these must not exceed 80% of the fund's assets. (‘Europe' includes all countries in the MSCI/FTSE pan European indices.) The universe of eligible European equities is constructed by the monitoring company and comprises all relevant securities available from their database from which a market capitalisation cut-off is derived each month.  


Rationale for the changes to the UK Smaller Companies Sector:  

The main sector benchmarks used are the NUMIS index, the FTSE Small Cap index and the MSCI UK Small Cap Index. The change to 15% recognises the evolving definition of UK small cap used by IA member firms and also allows the sector to accommodate funds using the MSCI UK Small Cap Index as a benchmark. This index uses a higher percentage (14%) to represent the smallest capitalisation of companies.  

Rationale for the changes to the European Smaller Companies Sector:  

Moving to use the lowest 30% to define smaller companies recognises this wider definition of smaller as used by IA member firms in the investment objectives of funds in this sector.  
The IA Sectors Committee recognises that each European country has different characteristics. Applying the same bottom percentage to each European country to construct the universe rather than to the region of Europe is, therefore, inappropriate. 


For further information, please contact:

Helen Ayres, Head of Communications: [email protected]

T: +44 (0)20 7269 4620

Ellen Hodgetts, Communications Manager: [email protected]

T: +44 (0)20 7269 4625

Ismail Abdi, Communications Executive: [email protected]

T: +44 7596 872575

IA Press Office: [email protected]

About the Investment Association (IA):

  • The IA champions UK investment management, supporting British savers, investors and businesses. Our 250 members manage £8.8 trillion of assets and the investment management industry supports 126,400 jobs across the UK.
  • Our mission is to make investment better. Better for clients, so they achieve their financial goals. Better for companies, so they get the capital they need to grow. And better for the economy, so everyone prospers.
  • Our purpose is to ensure investment managers are in the best possible position to:
    • Build people’s resilience to financial adversity
    • Help people achieve their financial aspirations
    • Enable people to maintain a decent standard of living as they grow older
    • Contribute to economic growth through the efficient allocation of capital.
  • The money our members manage is in a wide variety of investment vehicles including authorised investment funds, pension funds and stocks and shares ISAs.
  • The UK is the second largest investment management centre in the world, after the US and manages 37% of all assets managed in Europe.