1. Newsroom
  2. The potential of European small and mid-caps
Menu
UBP in the press 13.12.2016

The potential of European small and mid-caps

The potential of European small and mid-caps

L'AGEFI - In the search for opportunities in today's market environment it is clear that small and mid-caps are currently offering great value.


It is not just about a short trading window either - European "smid caps" demonstrate long-term appeal, due both to the segment's fundamentals and the profile of its constituent companies. Because of their smaller size, these companies start from a much lower base and can generally grow more quickly than their large-cap peers. In addition, they typically operate in fast-growing or attractive niche segments of the market.

There are roughly 1,500 European small and mid-caps, i.e. companies with market capitalisations of between €200 million and €5 billion. Analysts and asset managers pay relatively little attention to these smid caps, giving those specialising in this segment something of a competitive advantage. With time and application, it is perfectly possible to uncover gems that the broader market simply overlooks.

Although smid caps obviously vary widely in terms of their profiles, financial strength and business models, the segment seems to offer more scope for generating value. Much of this is down to the fact that the smid-cap universe contains a lot of companies operating in niche markets. Many have good pricing power because of their industrial expertise, exclusive products or innovations. Such characteristics can really help to mark out a sure-fire path to earnings growth. That is especially the case in the manufacturing, technology services and healthcare sectors in markets like Sweden and Germany, which have a rich fabric of small and medium-sized companies.

Looking to the future, European smid caps are set to show strong earnings momentum for the rest of 2016 and into 2017. Overall, they should offer more vigorous growth than large caps, whose earnings remain subdued by ongoing regulatory headwinds in the banks and insurance sectors. In addition, M&A deals, major demographic trends and shifts taking place within individual industries provide attractive themes across the smid cap sector.

However, it is important for investors to take steps to avoid certain pitfalls. Stock selection remains crucial, more so than in other parts of the equity market because liquidity and volatility can be more problematic than elsewhere. By taking a stock-by-stock approach, an investor can reduce dispersion of returns. To achieve that, an effective solution is to look at both the internal and external factors that drive a company's performance. This can start with an analysis of the quality of the company's balance sheet, its cash flows, operational structure, management, business culture and ability to limit costs. It can then lead to further consideration of the broader challenges and opportunities relating to the company's economic and sector environment.

In terms of investment selection it is not necessarily about making apparently obvious choices among   only companies with stable, predictable growth. Companies whose earnings are growing quickly after a turnaround, restructuring or change in business model should also be taken in consideration since they can often offer attractive buying opportunities. Furthermore, companies involved in M&A deals – which are especially common in a number of sectors including the business services and logistics sectors – are likely to attract attention and see their share prices rise. Looking specifically at companies in the healthcare sector, they may well benefit from major demographic trends such as population ageing. Additionally, fundamental shifts in the technology sector could prompt disruptive but beneficial change in a number of industries.

Read the original article


ANNISS_CHARLES_15.jpg

Charles Anniss
Small- and Mid-Cap Portfolio Manager, European Equities team

 

Newsletter

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

Click and enter your email address to subscribe

Investimenti responsabili

Creare valore con investimenti responsabili

Maggiori informazioni sugli investimenti responsabili

Guardate il video

Le news più lette

UBP in the press 14.09.2017

Exclusive interview with Guy de Picciotto

Neue Zürcher Zeitung (NZZ) - Guy de Picciotto, CEO of Geneva-based bank UBP, believes the financial sector could be at the start of a new era, past problems have been solved, and banks now have the chance to draw on their traditional strengths.

UBP in the press 12.09.2017

Five questions to Norman Villamin

NZZ am Sonntag (10.09.2017) - Interview with Norman Villamin, Chief Investment Officer (CIO) Private Banking and Head of Asset Allocation.

UBP in the press 09.10.2017

Active management still popular among investors

Market - With a team of more than 200 professionals, Union Bancaire Privée (UBP) has become a top-tier asset manager. UBP focuses on active management and is now a major player in the asset management industry. We spoke to Nicolas Faller, co-CEO of Asset Management at UBP.

Altro da leggere

UBP in the press 25.07.2018

Convertibles sparking investors’ interest

With the entry into an advanced phase of the economic cycle, companies have been looking at convertible bonds with fresh eyes as a valid alternative to traditional debt instruments to finance their growth.

UBP in the press 16.07.2018

Eric Morin covers a lot of ground in his role

cpjobs.com (14.07.2018) - It may not feature on his CV or official job description, but one of Eric Morin’s key skills is the ability to perform an astute balancing act. Doing that, though, has become second nature to him thanks to more than 30 years in finance and wealth management and a knack for managing change, planning adjustments, and taking a studied approach to every new initiative.

UBP in the press 13.07.2018

Markets: overlay strategies are up to today’s challenges

Equity markets still offer attractive investment opportunities, but since the beginning of the year they have seen increased volatility. In these conditions, overlay strategies can be an interesting solution for investors.