Growth now reasonably priced: our views on positioning for Swiss small and mid-cap equities

13th July 2022, Author: Portfolio Manager, Thomas Jäger

Mirabaud Portfolio Manager – Swiss Equities, Thomas Jäger, discusses the current positioning of our Swiss small and mid-cap equity portfolios given this year’s sharp correction which has left valuations looking far more attractive particularly for growth companies. We will continue to provide regular views and insights from our portfolio managers over the coming weeks.

In summary:

  • Navigating the current challenging market conditions requires agility and discipline.
  • Valuations are looking far more attractive, but H2 earnings will determine if potentially lower future earnings have been priced in.
  • We have shifted the portfolio’s previously cautious position by reducing its exposure to the defensive insurance sector in favour of growth opportunities that are now more attractively priced.  

We are currently at a very interesting market juncture. The decline of Swiss small and mid-cap equities has been steep this year – the SPI Extra Index has given back most of its previous outperformance over the large cap SMI Index – leaving valuations at far more attractive levels than they have been in recent years.

However, amid expectations that the world may be poised to fall into a recession, further volatility is anticipated in the coming months as H2 corporate results outline how far earnings may need to be rebased and how much of this has already been discounted into current valuations.

Navigating this storm will require agility and discipline as opportunities, such as growth at a more reasonable price and potential M&A activity as people seek to unlock value in underappreciated companies, are countered by uncertainties surrounding the secondary effects of the war in Ukraine, China’s zero Covid policy and hawkish central bank policy.

The portfolio’s performance has been in line with its benchmark so far this year, despite our highly active approach. Given the market’s significant derating, we feel valuations are now in an attractive enough position to take reposition the fund away from our previously cautious positioning, which was overweight defensive sectors such as insurance, in favour of redeploying cash into more attractive stocks, particularly in the growth area.

So far this year we have introduced five new stocks into the portfolio and increased our positioning in several names where we have high conviction and believe the price now represents a more compelling entry point. Key portfolio changes are highlighted:

  • We have added to our existing position in leading dental implant company Straumann, which is benefitting from strong demand for its clear dental aligner business. The company has also invested a lot of money in development and new acquisitions to increase its exposure to this very high growth area. Straumann is now the portfolio’s third largest holding on an absolute basis.
  • As active managers, we are also prepared to deviate from the benchmark when we have high conviction and one of our top relative positions is Temenos, a software company that focuses on the banking industry. The company is currently in the midst of structural change, shifting from a classical software subscription model to a more rental-orientated software as a service model. This shift has caused some short-term pain in the share price, but we feel the price is nearing a trough and have therefore added to our position at what we believe is a very attractive pricing point. We expect growth to be around 8-12% in the coming years and also believe Temenos could be an M&A target in the medium term.
  • We have further expanded our exposure to specialist financials by adding to two existing portfolio positions in this space. Swissquote is a Swiss bank which is very involved in online trading and its strong IT platform participates in the trading of cryptocurrencies. The stock price has recently suffered from industry concerns about cryptocurrencies, creating an opportune moment to add to our holding at an attractive price. We also topped up our position in Leonteq, which specialises in structured financial products and insurance products. Our biggest holding in this sector is Cembra, which is now the portfolio’s third largest relative position. Cembra is a private loan company in the domestic Swiss market, but also offers its own credit card solution and we continue to see strong upside potential for this business.
  • Another significant sectoral change has been to close the portfolio’s underweight to the semiconductor industry. Swiss companies have a very strong presence in this sector and while we have had exposure through Inficon, we have reduced this position in favour of bringing two new semiconductor stocks into the portfolio, Comet and VAT. These are component suppliers that benefit from having some very well known clients in the sector. Our semiconductor exposure is currently neutral, but our next step will be to raise that to overweight once there is more positive news flow coming from the sector as we see this as a very strong long-term growth story.  

The Swiss small and mid-cap (SMID) investment universe offers significant exposure to companies with strong growth potential into the long-term – if active managers know the space, do the research, and make disciplined and reasoned stock selections.

We believe the track record of the asset class speaks for itself: since 2000, the SPI Extra, the index tracking Swiss SMIDS, has grown 454%, against 231% for Switzerland’s broader index, the SPI.

To help you keep track of how the fund and the wider Swiss SMID universe is faring, we’ve created this page as a forum to consolidate news and insights on the strategy, and to keep you updated on any new developments.

Sustainabilty and our SMID strategy

  • The team works in close collaboration with Mirabaud Asset Management’s Socially Responsible Investing team to ensure it is aligned with the latest in ESG policies and practices
     
  • We exclude controversial weapons, tobacco, thermal coal, adult entertainment, and gambling, as well as companies that violate the UN Global Compact
     
  • We take both a top-down and bottom-up approach, excluding companies with low ESG ratings and evaluating our potential investments on the quality and sustainability of their business model
     
  • With both ESG-aligned voting and engagement policies, we strive to encourage best practices across the business community and deliver an ESG premium to our investors.

 

How the strategy works

Identifying compounders

We seek out companies with high returns on capital employed, smart capital allocation, defendable moats – and viable growth stories.

Bottom-up

Approaching investments like business owners, we are passionate stock-pickers and base our decisions on extensively research qualitative and quantitative data.

Patience

We have a bias towards the long-term – our preferred holding would be forever. This long-term time horizon means we can think about the future first, and find companies that do the same.

Discipline

We are laser-focused on finding and extracting the optimal added value – we filter the noise out to identify the right fundamentals to base our decisions on, and are not afraid to be firm.

Our investment philosophy

Our philosophy is founded on identifying stocks with potential for delivering resilient compounding growth based on:

  • High return on capital employed
  • Smart capital allocation
  • Defendable ‘moats’ – ie. able to sustain competitive advantages over their competitors
  • Growth narratives with long-term upside potential

Stay updated

Watch this space for updates and insights on the fund as we go forward.

Mirabaud Asset Management welcomes Jan Widmer to our Swiss Equity investment team

We are very happy to welcome Jan Widmer to our Swiss Equity investment team.

Jan has 17 years’ experience in investment management and has spent the last ten years successfully managing St.Galler Kantonalbank’s Swiss Equity Fund.

Jan’s arrival at MAM means he is reunited with his former colleague Thomas Jaeger, who he worked alongside at St.Galler Kantonalbank.

Read the Press Release

Valuation is emerging as the key element.

We invite you to read The Market’s in-depth interview with Daniele Scilingo and Thomas Jäger. They share their outlook for the sector, along with insights into some of their key holdings.

Read More

Mirabaud Equities Swiss Small and Mid Strategy

View the strategy details and reporting

Mirabaud Equities Swiss Small and Mid Strategy team

Daniele Scilingo

Head of Swiss Equities

 

Daniele Scilingo, Head of Swiss Equities, joined Mirabaud Asset Management in 2020. He joins from nanos investment ag, the firm he founded in 2017, where he advised family offices and HNWI on concentrated Swiss quality stock portfolios. With three decades of investment experience, Scilingo spent 15 years at Pictet Asset Management in Zurich and London. As a director he successfully led the build-up and expansion of the Swiss Equities franchise in Zurich. In London, he expanded his experience into European and global equities as well as international business management. Prior to Pictet, Scilingo also spent a decade at Vontobel as a sell-side analyst for Swiss equities.

 

Daniele is a CFA Charterholder.

Thomas Jäger

Portfolio Manager

 

Thomas Jäger joined Mirabaud Asset Management in 2017 as Senior Portfolio Manager. Prior to this he worked as an equity buy-side analyst at St. Galler Kantonalbank and managed the Swiss equity fund "SGKB Aktien Schweiz". Before this, Thomas worked as a portfolio manager for mixed asset management mandates at St.Galler Kantonalbank.

 

Thomas Jäger studied general management at the university of applied sciences in St. Gallen and completed various further training programs (CIIA, Swiss financial planner with professional license).

Nicolas Bürki

Portfolio Manager

 

Nicolas Bürki, joined Mirabaud Asset Management in 2005 and has experience in the asset management industry since 1997. Nicolas previously worked as an Equity Analyst and Manager of institutional multimanager mandates at Banque Cantonale Vaudoise. Prior to this, he worked at Ernst & Young and Deloitte & Touche as Senior Financial Auditor.

 

Nicolas Bürki holds a Master’s degree in Economics from the University of Lausanne (HEC). He is a CFA and a CMT charterholder.

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