Bellevue Entrepreneur Europe Small

European SMID caps, as measured by the MSCI Europe Small Cap ex-UK Index, declined 0.3% in September, underperforming European broader indexes (Stoxx 600; +1.5%). On the back of softening employment data, the US Federal Reserve cut rates by 25 bps, its first reduction since December 2024, potentially marking the start of a broader easing cycle. In France, Prime Minister François Bayrou’s government fell after a no-confidence vote tied to austerity measures, with Sébastien Lecornu appointed as his successor and tasked with forming a new cabinet. In Germany, parliament approved the EUR 503 bn 2025 federal budget, including EUR 62 bn for defense and EUR 140 bn in new borrowing, signaling a shift toward expansionary fiscal policy aimed at supporting growth. The eurozone’s Composite PMI rose to 51.2, driven by the resilient services sector (51.3), while manufacturing moderated slightly (49.8). In terms of sectors, materials (+2.0%), information technology (+1.8%), and utilities (+1.5%) performed best, while consumer staples (-4.2%), consumer discretionary (-2.4%), and communication services (-1.4%) lagged the most.

Against this backdrop, the fund remained flat, outperforming its benchmark by 31 bps. The fund is up 21.7% ytd, outperforming its benchmark by 611 bps.

The top detractors for the month were Puig (-15.0%), Burckhardt Compression (-14.3%), and Fuchs (-7.2%). Puig delivered solid H1 2025 results, with organic revenue up 8% and EBITDA margin expanding 52 bps to 19.4%. The ongoing slowdown in prestige fragrances led management to guide to the low end of 6%–8% organic growth. Despite this, Puig remains one of the fastest-growing beauty companies, trading at a notable discount to peers. Burckhardt Compression will be reporting its H1 2026 results on November 4. While FY and MT guidance remain intact, H1 order intake probably lost some momentum on the back of general customer hesitancy following the April tariff increases. The cautiousness of the company ahead of the publication of its results led to some profit taking. Fuchs remained weak after publishing uninspiring Q2 figures. While Europe and Asia are doing OK, the US is struggling. Fuchs should benefit from an economic rebound and infrastructure spending in Germany.

The top performers for the month were Montana Aerospace (+9.9%), Bankinter (+5.2%), and Metso (+5.8%). Montana Aerospace rebounded as the market focused on the divestment of its non-core energy business and the potential for further M&A as an aerostructure pure play. Bankinter performed well, in line with a strong European banking sector. Bankinter is a high-quality franchise with strong profitability, a growing fee base, and a prudent risk profile. It is well positioned to benefit from an acceleration of NII growth into 2026. Metso announced new financial targets ahead of its October CMD. The mining specialist introduced, for the first time, an annual revenue target of at least 7% for the next strategic period of 2026–2029. This compares with consensus expectations of around 6%.

During Q3, European SMID caps consolidated their advance. With a view to 2026, the asset class should benefit from a better monetary and fiscal environment in Europe, improving growth, and low inflation. Overall valuations have normalized somewhat in the mid-cap space, while small caps still trade at historically underwhelming multiples. More action should be expected from the European Union regarding both common defense and infrastructure projects. The SMID-cap segment is well positioned to benefit as their businesses are more Eurocentric and rely less on global trade. Also, the segment has a sound tilt toward the sectors of industrials and tech, which should continue to benefit from trends in automation and digitalization and the incorporation of AI for productivity gains.