European SMID outpaces US large caps
Everyone seems to be obsessed with the US. Portfolios are stuffed with mega caps, passive flows keep chasing the same names, and the S&P has become the only game in town. But step back and ask a simple question: does it really make sense for three quarters of your equity exposure to sit in one country?
I don’t think so.
Europe, in my view, is still the forgotten opportunity. For much of the past decade, investors have overlooked this market, distracted by the extraordinary momentum of US growth stocks. Now, the difference between the two is quite shocking. A single US mega-cap now carries more weight in global indices than the entire equity market of any individual European country. That imbalance of attention is exactly what makes Europe so interesting.
Even after its strong year-to-date run, valuations remain compelling, both in absolute terms and relative to the US, reflecting the extreme levels of scepticism priced into European equities. And here’s the kicker: in the small and mid-cap market (SMID), one in three companies is still trading down more than 60% from its peak. That’s not a market that has ‘run too far’ – it’s a market with huge catch-up potential.
You only see the extent of Europe’s SMID opportunity if you’re prepared to dig beneath the surface. That’s why I spend my time out on the road, talking to companies that most investors never see. These aren’t the ones on parade at sell-side roadshows. They are under-researched, founder-led businesses, often with real skin in the game and models competitors can’t easily copy. That’s where mispricing lives.
Naturally, SMIDs come with risks. They are more volatile, more exposed to sentiment, and often face thinner liquidity. But risk cuts both ways. Today the real danger, in my view, lies in the crowded end of the market – large caps inflated by relentless passive inflows. SMID companies, by contrast, have already been through the worst period on record. They have cut costs, adapted, and are now leaner and better positioned for recovery, trading on lower multiples and increasingly benefitting from fiscal and policy tailwinds.
The way I see it, we are at the start of a European renaissance. Investors are beginning to question whether US exceptionalism can last forever, and fiscal and monetary dynamics in Europe are turning more supportive. For those willing to go off the beaten track, the opportunities in European small and mid-caps are as good as I’ve seen in over a decade.
The market has written Europe off too many times. This time, I believe, it will be proven wrong.
European Equities
Why small is beautiful
European Equities
Mirabaud - Discovery Europe
EUROPEAN EQUITIES
Why small is beautiful
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