THE chairman of Standard Life UK Smaller Companies Trust has highlighted its belief that stock markets will remain “volatile and challenging” until there is more clarity on what Brexit negotiations will mean for the economy and businesses.

But David Woods, writing in the investment trust’s latest results statement, also emphasises the board’s confidence in the long-term outlook for Standard Life UK Smaller Companies.

The trust unveiled a 16.7 per cent total return on net asset value for the six months to December 31. This was adrift of the 17.7 per cent total return on its reference index, the Numis Smaller Companies Index (excluding investment companies).

The trust highlighted its long-term outperformance, with its total return on net asset value over 10 years of 223.2 per cent well ahead of a corresponding 118.4 per cent for the reference index.

Mulling the financial market outlook, Mr Woods said: “The UK and world markets are adapting to the post-Brexit environment. Some of the more doom-laden prophesies have not come to pass but we do not seem to be that much clearer as to what the landscape will look like once the negotiations are all complete.”

He added: “Markets remain volatile and challenging and we expect this to remain the case until we have more clarity on what the Brexit negotiations will mean for the economy and, more particularly, the companies in which we invest.”

Trust manager Harry Nimmo, head of smaller companies at Standard Life Investments, said: “Following the Brexit vote, our stock

selection matrix has been steering the new purchases towards businesses with significant overseas exposure.”

He noted larger follow-on purchases had included stakes in Hill & Smith, which specialises in infrastructure construction safety equipment and has substantial US exposure, visual display unit distributor Midwich, and 4imprint, which is focused on “US-orientated sales promotion materials”.

Among the trust’s best-performing stocks in the six months to December was Fevertree Drinks, which produces premium tonic water and delivered a 58 per cent return.UK vets chain CVS Group produced a 42 per cent return.

JD Sports Fashion notched up a 38 per cent return as it continued to pursue its international expansion plans, with Mr Nimmo noting “ath-leisure clothing continues to gain momentum across markets”. He also cited evidence that JD Sports’ “foray into outdoor-wear may be starting to pay off”.

Fund administration company Sanne Group, which recently acquired a business based in Mauritius, recorded a 49 per cent return.

Mr Nimmo cited a drag on relative performance from not owning mining stocks Vedanta, Kaz Minerals, Evraz and Ferrexpro.

He said: “The end of March should signify the firing of the starting gun for the [EU] exit negotiations to begin as Theresa May and her Government trigger Article 50 of the Lisbon Treaty. It is only then that any real shape to the outcome starts to develop. My thinking is the negotiations will take all of the two years permitted. This takes us into 2019. It is only some time after the implementation of the withdrawal treaty that the full impact can be properly assessed.”