Bellevue Entrepreneur Europe Small

European SMid caps, as measured by the MSCI Europe Small Cap ex-UK Index, increased 1.2% in October (SXXR +2.0%. SPX -0.9%, MXWO -0.8%). Tensions in the Gulf kept energy markets on edge in October, with Brent rising nearly 14%, although oil flows through the Strait of Hormuz held up well. With little sign so far of second-round effects, the Fed and the ECB could afford to pause after September’s hikes. Equity markets digested mixed hyperscaler earnings that kept the debate on AI returns alive, while in Europe French bonds came under pressure amid budget uncertainty before recovering slightly from their lows. Toward month-end, Qatari mediation revived hopes of a US–Iran deal, though markets remained attentive to how the 3 November midterms might shape Washington’s stance. The EZ economy continued to prove resilient. The Eurozone Composite PMI stood at 51.9, with manufacturing at 52.7 and services at 51.7, keeping activity in expansion territory. In terms of sectors, Healthcare (+8.9%), Communication Services (+7.3%) and Energy (+5.2%) performed best while Materials (-5.7%), Information Technology (-2.2%) and Financials (-0.5%) lagged the most.

Against this backdrop, the Fund (B-share, EUR) was down -0.2%, underperforming its benchmark by 141bps. YT-October-end the Fund is up 8.4% at par with its benchmark.

Top detractors in the month were Bankinter (-14.3%), BE Semiconductor Industries (-19.7%) and Outokumpu (-14.4%). Bankinter’s Q3 revenue mix disappointed as revenue slightly missed expectations on the back of lower fees and trading income. Also, European banks fell more than 10% during the month, fueled by the French fiscal uncertainties. We had significantly reduced our position mid-month. BESI underperformed amid concerns about potential competition from ASML and the pace of HB adoption in HBM. While Q4 was affected by a number of temporary timing effects, consensus 2027 estimates moved higher, supported by an order book that continued to surprise positively. Later in the month, Applied Materials’ announcement of plans to increase its stake to c.20% provided a powerful strategic validation of BESI’s technology and long-term positioning, triggering an almost 9% rebound. Outokumpu suffered amid general sector profit taking under raising energy costs and the fading confidence in the European stainless-steel recovery despite import protection.

Top contributors in the month were Cloetta (+19.3%), Virbac (+11.4%) and Hensoldt (+12.3%). Cloetta benefited from growing investor awareness of its US expansion potential, following September’s Target announcement and the launch of Pick & Mix in DeCicco & Sons stores. A broader rotation into defensive businesses likely provided additional support. Virbac was supported by strong Q3 revenue, which beat consensus expectations. The company also confirmed its full-year guidance, targeting revenue growth at the upper end of its 5.5–7.5% range and an EBIT margin of around 17%. Hensoldt benefitted from several positive broker notes on the back of its attractive positioning in the space of radar, air defence and electronics. The defence sector was weak overall.

We see opportunities for European SMID caps, while remaining mindful of geopolitical uncertainty and the induced macro risk. October’s contrasting share-price reactions reinforced the importance of earnings delivery and credible guidance.. We favour companies with resilient cash generation, sound balance sheets and the ability to fund their own growth. European investment in the structural growth themes of industrial innovation, AI, electrification, energy security, infrastructure and defence offers big chances, although the timing of orders and their conversion into profits remain critical. We seek opportunities where share prices imply a more cautious outlook than company fundamentals warrant as the valuation of some European “picks and shovels” have reverted to pre-Chat GPT levels. Our focus remains on building long-term returns through disciplined valuation and company research, with any de-escalating events in the Ukraine or Iran providing economic relief and additional upside.