Ken Nicholson, PM for the European Small Caps Fund at Mirabaud Asset Management talks about the performance European small caps have had this year. “The market value of the companies in our portfolio is usually between €500m and €4bn. We find opportunities not just classic growth stories but also some restructuring and value ideas,” he points out in this interview.
What is the fund’s investment philosophy?
To invest in 40-50 European small and mid-sized companies that will provide a strong investor return. The market value is usually between €500m and €4bn.
How has been the performance of European small caps this year?
On average, the performance has been average but the better names would have provided a strong return. So your returns depends on good stockpicking. Our performance has been as well average, as the major trend in the market is.
How can the slow growth and deflation in Europe affect European small caps?
Of course it is better to have a good economic development as this provides a strong tail-wind for all businesses. But our strong view is that good small companies can provide resilient and durable even in more difficult times.
Do small-caps look attractive versus large-caps?
Not especially on valuation but forecasts are for a little higher growth for small companies. However it is important to be very careful in picking only the best stocks.
Smaller companies often operate under less market scrutiny than their larger rivals and have lower liquidity.
Are riskier assets than large-caps?
Smaller companies are usually considered more risky but this is the mentality of an asset allocator. There are many stock specific risks in every case. Just because the Banks were big and oil companies too didn’t save them from disastrous performance. You can find risky small caps but you also can find very safe and stable ones. Our job is simple …to pick the good small companies!
What are the reasons why investors should consider investing in the European small and mid strategy?
In a low-growth world where there are few other good investment opportunities, we still find many great small cap names that offer good return potential.
Where are you finding opportunities?
We find good names in most sectors and in most countries. Not just classic growth stories but also some restructuring and value ideas. The economic environment is not especially supportive but then it has also been a lot worse!
What do you expect for the next months?
We seem to be in a low growth environment with the remnants of the financial crisis still not finally eradicated. Political risks are uppermost in investor minds, of course in Spain and also with the Brexit vote which could impact on the whole of Europe, not just the UK. Investor uncertainty is intense and this leads to market volatility. All this can provide opportunities to time a good entry point for investing in good small and mid cap companies.