Bellevue Entrepreneur Europe Small

European SMid caps, as measured by the MSCI Europe Small Cap ex-UK Index, rose 4.4% in May, outperforming European large cap (SXXR 3.0%). Markets extended their recovery, supported by a solid Q1 2026 earnings season and growing optimism around a potential de-escalation of the Iran conflict, though a resolution continues to prove elusive. Inflation remained a key focus, with headline inflation running at 3.0% in the Euro area and 3.8% in the US, triggering a breakout in government bond yields across maturities. Against this backdrop, central banks on both sides of the Atlantic held rates steady, though with an increasingly hawkish bias as the risk of entrenched supply-side inflation continues to linger. The Eurozone Composite PMI eased further to 48.5 in May, as weakness in services (47.7) offset continued resilience in manufacturing (51.6), which expanded for a fourth consecutive month. In terms of sectors, Information Technology (+17.1%), Materials (+8.2%) and Consumer Discretionary (+6.9%) performed best while Energy (-5.1%), Utilities (-1.4%) and Consumer Staples (+0.0%) lagged the most.

Against this backdrop, the Fund (B-share, EUR) returned 4.4%, outperforming its benchmark by 2bps. Year-to-April-end the Fund is up 11.7%, an outperformance of 167bps.

Top detractors in the month were Rovi (-25.3%), Nordex (-14.7%) and Puig (-8.7%). Rovi unexpectedly lowered its FY 2026 guidance in its Q1 2026 results, reducing its revenue growth outlook from 8–12% to 0–5% due to delays in the ramp-up of a major GLP-1 CDMO contract. As a result, 2026 is now expected to be a transition year, characterised by upfront costs and limited revenue contribution. After a strong share price appreciation and record Q1 earnings, Nordex suffered some profit-taking, nevertheless we continue to see upside to the case. Puig discontinued the merger discussions with Estée Lauder. While the announcement came as a surprise given the apparent strategic rationale for a combination, we remain confident in Puig's long-term prospects as a standalone business and expect management to outline an updated strategic roadmap at its Capital Markets Day in H2 2026.

Top contributors in the month were Jenoptik (+37.8%), El.En (+23.9%) and Tecan (+32.9%). Jenoptik's re-rating remains supported by the semiconductor capital equipment upcycle, alongside an increasing likelihood of guidance and consensus earnings upgrades. Despite the stock's strong performance, Jenoptik continues to trade at attractive valuation multiples of approximately 12x and 10x FY2026 and FY2027 EBITDA. El.En reported strong Q1 2026 results, with its Medical division returning to double-digit growth driven by robust demand in both aesthetics and surgery. The strong performance also resulted in record margins. Despite the strong start to the year, management maintained its FY guidance, which we deem conservative. Tecan reported a solid Q1 2026 trading update, with organic revenue growth of 3.4% and order intake increasing 6.7%. The company also reaffirmed its FY guidance for low-single-digit growth, which appears conservative given the stronger order momentum.

YTD, the SMID-cap performance has held up versus large caps in most regions. Even in Europe, SMID caps have beaten Large since the start of the Iran war against what most would have expected. This is the result of tech and AI displacements trumping oil and inflation fears. The bottlenecks of AI are physical: data centres, land, water, grid access, power, memory, cooling etc. The European SMID Indices have significant exposure to tech and engineering companies benefitting as suppliers into the fast developing world of the AI infrastructure ecosystem. As a stock pickers we successfully identified these structural winners early.. During the month we reduced Rovi and trimmed some of our semi related names, adding exposure to Metso, Exail, Hensoldt and Tecan.