Bellevue Entrepreneur Europe Small

European small and mid caps, as measured by the MSCI Europe Small Cap ex-UK, rose 0.8% in June, outperforming European large caps (SXXR -1.8%, S&P 500 +5.1% in USD, +1.4% in EUR) for the fourth consecutive month. Market sentiment shifted notably during the period, initially weighed down by escalating geopolitical tensions in the Middle East. A rapid ceasefire, combined with moderating inflation expectations, a more dovish shift from some Fed officials, and renewed optimism on global trade contributed to the S&P 500 reclaiming its all-time high. In the Eurozone, the ECB delivered a 25 bp rate cut, while the Composite PMI held steady at 50.2, signaling continued economic expansion. In term of sectors, information technology (+5.6%), energy (+3.8%) and consumer discretionary (+1.8%) performed best while consumer staples (-5.9%), financials (-0.4%) and health care (-0.2%) lagged the most.

Against this backdrop, the fund returned 3.0%, outperforming its benchmark by 220 bps. Ytd the fund is up 17.2%, outperforming its benchmark by 470 bps.

Top performers in the month were Montana Aerospace (+41%), Wartsila (+13.7%) and Sopra Steria (+11.6%). The aerostructure supplier Montana displayed strong profitability improvement in the Q1 update, with aerostructure EBITDA margins expanding to 18% (+400 bps). FY guidance was confirmed despite tariff uncertainties. Montana will considerably benefit from the ramp up of Boeing's and Airbus’ production in 2026, which will contribute to higher profitability and ROIC. As a leading power equipment and solution provider, Wartsila is benefiting from structurally strong demand trends in both end markets energy and marine. We expect Wartsila to be able to gain market share in the booming market of power generation for data centers, also in the US. Sopra Steria outperformed both its sector and the market, sustained by the stabilization of the Airbus supply chain, its ca. 20% exposure to the defense sector and the ramp-up of a large contract with the UK public sector.
 
Top detractors in the month were Swissquote (-8.9%), Nordex (-5.5%), and Cloetta (-4.1%), all three suffering some profit taking after very strong ytd performances. The SNB cutting policy rates by 0.25% to 0% will be a negative for the NII but Swissquote’s management should have taken this into account in their traditionally conservative FY guidance. We expect the continued strong trading activity also in crypto to compensate for lower NII. Nordex (ytd +59%) suffered from profit taking as the US administration was aggressively looking to phase out key tax incentives for Renewable projects. At the time we write, the new version of the bill appears more favorable, but is should be noted that Nordex has very limited current exposure to the US. Following a strong +23% share price performance in May on solid Q1-25 results, Cloetta eased together with the weaker consumer staples sector. We remain positive on the company’s outlook, underpinned by an acceleration of revenue growth, margin improvement, and strong FCF, which support potential upside from M&A and higher shareholder returns.

In Q2 European small and mid caps strongly outperformed large caps, finishing the quarter 6.3% better than the Stoxx 600 and 10% better than the Stoxx 50. July will be eventful with news from the EU/US tariff negotiations and the start of the Q2 earnings season. On tariffs, progress is being made and the overall sentiment is for a more orderly process than initially feared, potentially leading to a first frame agreement. Depending on the outcome, we could see some interesting sector rotations. Members of the NATO agreed to increase defence spending to 5% of GDP, which could double spending by 2035 and includes 1.5% of GDP for infrastructure investments. We believe the German fiscal backdrop is still underappreciated and further investment announcements should lead to a continuous outperformance of European equities.