The figures are convincing. Over the last twenty years, the representative index of small listed European companies, the MSCI Europe Small Cap, has grown by 8.9% per year on average, against only 4% for the index dedicated to large stocks. The performance is therefore there in the long term for small and medium-sized enterprises (SMEs), even if the latter can go through difficult phases, as was the case in 2018.
Betting on small companies indeed has several advantages for a stock market investor. “SMEs are less mature than large groups, so they have more marked growth profiles”, says Xavier Milvaux, co-manager of the Tiepolo PME fund at La Financière Tiepolo. In addition, they are generally monoactivity, which makes it possible to precisely target certain investment themes. “For example, in cybersecurity, it is possible to invest in small specialized companies while the major stocks in the sector are also present in other activities”, explains Sébastien Lalevée, Managing Director of the management company Financière Arbevel and co-manager of the Pluvalca Initiatives PME fund.
In addition, this market segment is less followed by analysts, who give their opinion on listed companies. A peculiarity which presents drawbacks as well as advantages. For an individual, it will be more complex to invest in this market, because it is necessary to carry out its own analysis to identify the nuggets among all the values. But on the other hand, “This offers more opportunities, on condition that you sort it out because the universe is very disparate”, emphasizes Xavier Milvaux. Under these conditions, investing through a fund can be a practical solution.
Anticipation of economic recovery
The managers seek to focus on the most promising sectors by identifying global or regional leaders active in niches. “The digitization of the economy is a theme in which we have been investing for a long time, for example via semiconductors, cybersecurity and also service companies which support companies in their digital transition”, indicates Sébastien Lalevée. The two co-managers do not refrain from any sector, including those of biotech and medtech, which are promising but very risky. Tiepolo PME’s positioning is more cautious. “Without neglecting IT services, we prefer more traditional sectors, such as furniture, media, automotive, distribution of building materials”, explains Xavier Milvaux.
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