European Smaller Companies: Outlook for 2019

January 2019
Ben Griffiths , Portfolio Manager

How do you see the market landscape in 2019?

I expect that 2019 will differ from 2018 but it will in many ways probably resemble the second half of 2018. We saw a big change obviously in sentiment during 2018 from a very low volatility and relaxed market environment to one which was really the polar opposite of that. And I think that that probably continues through 2019. The reason for that is again the removal of stimulus which has been happening, as well as potential trade wars and a macro slowdown that we’re seeing. So, on top of the political worries I see in the world, this in my mind should really lead to a much more volatile market in 2019 than we’ve seen in 2018 and indeed in previous years.

What are the main headwinds and tailwinds for the region?

For me the main headwind is the removal of stimulus that is going on around the world. We’re seeing rates rising and fiscal easing being limited. And this is, this end of the easing money era is definitely very relevant to my investments. It means that there’s just less money chasing the kind of assets I want to invest in.

On the other hand I also see sustained tailwinds still in the market. And these will mostly be structural tailwinds in my view around areas such as the shift to ecommerce and new industries indeed taking over and replacing old industries in my mind in the world. So this big economic structural shift that we already see happening now I think is sustained and will carry on for the next few years. And fortunately, my portfolio invests in these type of companies, so hopefully this tailwind will carry on driving many of my companies forward.

What is your view on valuations in European small cap?

My view on valuations in small cap is actually that now they look fairly attractive. If I look at the valuations of the small cap index overall it is now at a fairly attractive level versus a kind of earnings growth that you can expect. This is an attractive asset class for me which does tend to grow. I also like to look at the valuation of the type of companies which I look into my own portfolio of stocks, which tend to be higher quality, higher growth and hence higher valuation stocks. When we look at this number, we actually see that that’s contracted even more than maybe the overall market has recently. So in my view this means that those high growth stocks are now on a relative basis, more attractive than the market overall.

Key Risks - The following risks are materially relevant to the strategy highlighted in this material:

The following risks are materially relevant to the strategy highlighted in this material: Transactions in securities of foreign currencies may be subject to fluctuations of exchange rates which may affect the value of an investment. Investment in small companies involves greater risk than is customarily associated with larger companies, since small companies often have limited product lines, markets or financial resources.




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Class I EUR
ISIN LU0382931417
A diversified growth portfolio of around 70-100 small- and mid-cap European companies. We seek high quality, innovative companies that can demonstrate durable and attractive rates of growth and grow much larger over the longer term.
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