Bellevue Entrepreneur Europe Small

European SMID caps , as measured by the MSCI Europe Small Cap ex-UK Index, rose 1.4% in October, underperforming the broader market (Stoxx +2.6%). Global economic conditions remained resilient, supported by moderating inflation and stronger-than-expected corporate earnings. In the US, the Fed cut rates by 25 bps and announced the end of QT, signaling a clear pivot toward policy easing amid a gradually cooling labor market. In the eurozone, preliminary Q3 GDP growth surprised to the upside at +1.3%, driven by firmer investment, improving business sentiment, and a smaller drag from trade. France and Spain showed encouraging momentum, while activity in Germany and Italy remained stable. A one-year trade truce between the US and China helped ease tariff angst and support global business confidence. The eurozone’s Composite PMI rose to 52.2 in October, supported by a stronger services sector (52.6), while manufacturing edged up to 50.0, signaling a return to expansion. In term of sectors, utilities (+8.3%), healthcare (+2.6%), and information technology (+2.1%) performed best, while consumer staples (-0.8%), communication services (-0.8%), and consumer discretionary (+0.2%) lagged the most.

Against this backdrop, the fund returned 1.6%, outperforming its benchmark by 23 bps. The fund is up 23.7% ytd, outperforming its benchmark by 648 bps.

Main detractors for the month were Sopra Steria (-16.6%), Ipsos (-12.2%) and Do & Co (-6.8%). Sopra reported disappointing Q3 organic growth of -2.9%, impacted by delays in the ramp-up of a large UK defence contract. The company confirmed its FY guidance and a return to positive growth as soon as Q4. Sopra is trading at PE 8x, underestimating its growth potential and the central role of IT services in the world of AI. Ipsos delivered better-than-expected Q3 revenue growth of 2.9% but reduced its FY growth guidance by 50 bps to +0.7%, impacted by the public sector weakness. Excluding public affairs – which we expect to stabilize – growth reached +2.1% in the first 9M and +3.9% in Q3, underpinned by the strong performance of North America, where AI penetration is most advanced. Do & Co suffered from profit taking ahead of its quarterly results. We expect management to confirm the company’s 8% to10% trend growth, sustained by premiumization of airline catering, market share gains and international events.

Top performers for the month were Metso (+23.3%), Montana Aerospace (+15.6%), and Virbac (+12.7%). Metso reported strong Q3 results with orders beating consensus expectations. Adjusted EBITA margins rose to 16.7%, leading to broker upgrades. Metso secured several new orders, including significant iron ore projects in India and Brazil. Montana benefitted from positive sector news flow. Boeing won regulatory approval to ramp up production of its best-selling 737 Max from 38 to 42 a month, a long-awaited milestone. Airbus presented solid results, with the potential for FY deliveries exceeding 800, reinforcing market confidence that the supply chain has finally turned a corner. Virbac reported strong Q3 results with 12.5% organic revenue growth. Growth was broad-based, driven by companion-animal and specialty products, underpinned by recent product launches. Following the solid performance, the company raised its FY guidance to 5.5% to 7.5% growth and an EBIT margin of around 16%.

The improving economic environment in Europe, both from the standpoint of liquidity and according to purchasing managers’ indices, is a positive backdrop for SMID caps. Earnings trends have also been improving, while valuations are still very compelling. The recent narrative among cyclical industrial companies is also turning more constructive, with the insecurities following «Liberation Day» slowly receding. We observe some green shoots in conversations with management, albeit on a selective and sometimes company-specific basis. Overall, we see a continuous global need for more infrastructure CapEx investments to address the several strategic and pressing issues of AI, electrification, energy security, defence, and deglobalization, to name a few. Trump and “Liberation Day» induced a temporary slowdown in activity, but these projects will stay relevant and strategic for the foreseeable future.