1. Newsroom
  2. Small- and mid-caps: still attractive investments
Menu
UBP in the press 27.06.2017

Small- and mid-caps: still attractive investments

Small- and mid-caps: still attractive investments

L'Agefi - Small- and mid-cap stocks are being buoyed by solid fundamentals and the improving economic environment, and remain attractive as components of a long-term investment strategy.


Since the start of the year, equity markets have been supported by positive economic developments. Earnings are growing again: on aggregate, earnings per share (EPS) are expected to rise 13% this year as opposed to 2% in 2016. This positive environment is particularly beneficial for small- and mid-cap (“SMID-cap”) companies, although returns have varied between stocks in the US, Europe and Switzerland.

Fundamental strengths amplified by a supportive environment

In particular, SMID-caps currently have stronger balance sheets than large-cap stocks, with average net debt/EBITDA ratios of 1.1x and 3.9x respectively. These low debt levels, combined with the global economic upturn, mean that SMID-caps still have substantial growth potential, justifying valuations that may appear high in some cases. That growth potential is also underpinned on a long-term view by their impressive capacity for innovation and their ability to adjust to economic developments, which should deliver additional returns in the absence of any systemic risk.

SMID-caps also have other fundamental advantages. For example, many of them are family-owned companies, managed according to a philosophy that ensures the sustainability of their business. In addition, small companies are often driven by a highly entrepreneurial spirit, the effects of which can be seen most clearly when economic growth is accelerating.

Performance drivers that vary between countries

In Europe in particular, SMID-caps are still offering good investment opportunities because they are attractively valued. European SMID-caps slightly underperformed large-caps in 2016, even though their earnings growth remained positive.

Their valuation ratios are currently lower than those of the rest of the market, and lower than their historic averages.

Swiss SMID-caps have had to contend with a strong currency for more than two years now. They have managed to do so by focusing on their competitive advantages and on innovation, while keeping costs tightly under control, which has enabled them to improve profitability. They have also continued to expand successfully in emerging markets over the last few years. For investors, therefore, they offer the stability of a developed market together with indirect exposure to emerging-market growth.

In the USA, the renaissance of the manufacturing sector and the upturn in consumer spending should benefit domestic companies for a long time to come. Unlike Switzerland’s internationally oriented companies, US small-caps are mainly focusing on organic growth on their local market.

US corporate tax reforms should be particularly beneficial to SMID-caps, which tend to pay higher tax rates than large corporations. As a result, US small-caps should continue to fulfil their potential, particularly in more cyclical sectors and finance.

Although these stocks have already made significant gains in 2017, they are still attractive investments, particularly for those wanting to put together a balanced portfolio for the long term. On both sides of the Atlantic, the global economic recovery should both support and boost the earnings growth of these dynamic, entrepreneurial companies.

Read more about Small cap

FALLER Nicolas.jpg

Nicolas Faller
Co-CEO Asset Management – Head of Institutional Clients

 

Click to subscribe

Web conference on 30 June, 10 a.m. on small and mid caps

With Charles Anniss, Cédric Le Berre and Benjamin Soussan.

Subscribe now!

Newsletter

Sign up to receive UBP’s latest news & investment insights directly in your inbox

Click and enter your email address to subscribe

Responsible Investment

Value creation through responsible investment

Learn more about our Responsible Investment expertise

Watch the video

Most read

UBP in the press 19.06.2018

Geneva private bank UBP expands in Zurich

NZZ am Sonntag (17.06.18) - By Daniel Hug and Albert Steck.

Union Bancaire Privée has doubled the assets it has under management in Zurich in five years. CEO Guy de Picciotto wants free access to the EU market, which he can currently only gain indirectly.

UBP in the press 12.06.2018

UBP's takeover of Banque Carnegie

The Luxembourg Times (05.06.18) spoke to Michel Longhini, CEO of private banking at UBP, about the acquisition, the strategy in Luxembourg and the potential for more takeovers.

UBP in the press 28.05.2018

Unconstrained active bond managers prove their worth

Agefi Indices (May 2018) - The upturn in market volatility in early 2018, along with the gradual return to normal in inflation and interest rates, is working in favour of active bond managers.

Further reading

UBP in the press 19.06.2018

Geneva private bank UBP expands in Zurich

NZZ am Sonntag (17.06.18) - By Daniel Hug and Albert Steck.

Union Bancaire Privée has doubled the assets it has under management in Zurich in five years. CEO Guy de Picciotto wants free access to the EU market, which he can currently only gain indirectly.

UBP in the press 12.06.2018

UBP's takeover of Banque Carnegie

The Luxembourg Times (05.06.18) spoke to Michel Longhini, CEO of private banking at UBP, about the acquisition, the strategy in Luxembourg and the potential for more takeovers.

UBP in the press 28.05.2018

Unconstrained active bond managers prove their worth

Agefi Indices (May 2018) - The upturn in market volatility in early 2018, along with the gradual return to normal in inflation and interest rates, is working in favour of active bond managers.