1. Newsroom
  2. SMIDs continue to offer good investment opportunities
Menu
Analysen 29.05.2018

SMIDs continue to offer good investment opportunities

SMIDs continue to offer good investment opportunities

Small and mid caps (SMIDs) have been outperforming large caps since the beginning of the year and many factors are in place for this solid trend to continue.


Over the last few years (with the exception of 2016), European SMIDs have repeatedly put in better performances than large-cap stocks. Despite the strong comeback of volatility at the start of the year, this market segment continues to do well.

Over the first four months of the year, a number of different trends have been witnessed. In January and February, volatility leapt on equity markets as a whole, but it particularly affected large-cap names, which were penalised by ETF sales and by the poor performance of bond proxies in a period of rising interest rate expectations. The lower proportion of bond proxies within the small-cap segment meant that they were not as badly affected. From March, a second phase of uncertainty appeared, with fears sparked by Donald Trump’s protectionist measures and the problems blighting Facebook. During this period, it was defensive names that held up best. Lastly, in April, markets normalised, with a sectoral rotation into values stocks.

In this more turbulent environment, SMIDs continued to outperform their large-cap counterparts. From January to April, the MSCI Europe Large Caps returned +0.04% (to 27 April), whereas the MSCI Europe Small Caps chalked up +1.20%.

Steady momentum set to continue

This solid performance should continue this year given the positive economic fundamentals of this asset class.

For 2018, European SMIDs’ earnings growth is expected to be around 19–20%. These expectations are higher than those of large caps, which are set to see their earnings growth settle around 12–13% this year. Small companies inherently have greater growth potential than large companies that have often already matured on their markets.

But small caps also have the advantage of being more exposed to domestic European markets than large caps and stand to benefit from the regional economic recovery that is currently under way.

This solid dynamic is also favourable for mergers & acquisitions, for which SMIDs are often prime targets. M&A activity has picked up at the beginning of the year and this should continue given the current low-rate environment in Europe, before rates progressively rise as the ECB winds up its intervention programme.

Still good value

European SMIDs still have the advantage of having strong balance sheets, with average leverage ratios of around 1x net debt / EBITDA, around half the level of their US counterparts. 

After several years of strong performance, SMID cap valuations are now above their long-term average in absolute terms. However, valuation levels remain broadly similar to those of large caps but SMID cap earnings growth is outpacing that of their large cap counterparts.

To make the most of the opportunities being offered by the SMID segment, it is always important to be able to remain selective. Irish, French and Spanish SMEs currently offer attractive opportunities   and we have an overweight exposure to these geographies within our asset allocation.

UBP European Equities

ANNISS_CHARLES_15.jpg

Charlie Anniss
Senior Portfolio Manager

Expertise

Impact investing - Contributing to a more sustainable future

What are the key features of impact investing?

Read more

Meistgelesene News

Analysen 10.06.2021

COVID-19: Die UBP hält Sie auf dem Laufenden

Seit dem Ausbruch des Coronavirus begleiten und unterstützen wir unsere Kunden während dieser ungewöhnlichen Zeit einer weltweiten Gesundheitskrise. Die Bank informiert Sie regelmässig über die Anpassungen ihrer Massnahmen an die von den Gesundheitsbehörden vorgegebenen Vorsichtsregeln. Ausserdem kommen unsere Experten zu Wort, welche auf die Auswirkungen der Pandemie auf die Weltwirtschaft und die Finanzmärkte eingehen.

Analysen 24.03.2021

Diskretionäres Portfolio-management: Sie haben die Zügel in der Hand

Ihre Ziele und Wünsche sind einzigartig – genauso wie unser Ansatz im diskretionären Portfoliomanagement

Analysen 02.02.2021

Healthcare IT: A shift with no turning back

Although technology in the healthcare industry is still in its infancy, its future will be one of improved health outcomes, increased efficiency, more precise clinical interventions and, ultimately, reduced healthcare expenditure for governments and patients alike.


Auch lesenswert

Analysen 27.07.2021

Japan: Lukewarm Olympics, consumption to recover in H2

Asia Macro - The Olympics will take place despite the State of Emergency (SOE) being extended until August 23. International spectators have been banned and consumer sentiment remains subdued, with few people supporting the event.

Analysen 20.07.2021

Impact investing engages with a wider public

Impact investing increasingly tells a story that investors can relate to, as Rupert Welchman pointed out at the recent Sustainable Investment Festival.

Analysen 09.07.2021

The potential of Impact investing in listed equities

UBP’s Impact investing approach began with listed equities, as Victoria Leggett, Head of Impact investing at UBP recalled at the Sustainability & Impact Investor Forum on 14 June.