European Small Caps: Recovery gains momentum

• Birgitte Olsen
  Head Entrepreneur Investments
  Bellevue Asset Management

Structural gowth drivers remain intact  

The recent period of underperformance relative to large caps has led many investors to overlook the segment. Yet the underlying fundamentals tell a very different story. Today, many European small-cap companies are at the forefront of some of the most powerful structural trends shaping the global economy. Electrification, AI infrastructure, energy efficiency, industrial automation, and reshoring are creating compelling growth opportunities across a broad range of niche industries. These businesses are often leaders in highly specialized markets, benefiting from strong competitive positions, pricing power, and long-term growth opportunities.

For active investors, this creates a particularly compelling opportunity set. The European small-cap universe comprises more than 2,000 listed companies, spanning a diverse range of industries and structural growth themes. However, identifying the most attractive opportunities requires specialist expertise. Success in this market depends on uncovering high-quality, under-researched, and often overlooked businesses before they become widely recognized.

The strength of these underlying trends is increasingly reflected in corporate performance. Earnings have remained remarkably resilient, and the latest reporting season saw an increasing number of companies exceed expectations. At the same time, earnings growth forecasts continue to improve, reflecting the strength of secular demand drivers that are becoming increasingly decoupled from broader economic growth trends.

Attractive valuations support the outlook

Despite this improving outlook, valuations remain attractive. European small caps continue to trade below their historical average multiples and at a significant discount to large caps. Such a discount is historically rare. Small caps have typically commanded a valuation premium, reflecting their superior long-term growth potential.

As European small caps continue their recovery, investors are presented with a rare combination of improving fundamentals, attractive valuations, and powerful long-term growth drivers. With a proven investment process, deep expertise, and a strong track record of identifying Europe’s hidden champions, Bellevue Entrepreneur Europe Small Fund is well positioned to benefit from the continued resurgence of this compelling asset class. 

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