Bellevue Entrepreneur Europe Small

European small and mid caps, as measured by the MSCI Europe Small Cap ex-UK, rose 6.4% in May, pursuing their outperformance (SXXR +4.8%, S&P 500 +6.2% in USD, MSCI World +6% in USD). Markets started the month on a strong note, boosted by easing US-China trade tensions and solid US economic data. The rally somewhat lost steam mid-May with Moody’s downgrade of the US credit rating to Aa1 highlighting concerns over the level of deficit exceeding 6% of GDP. US long-term yields rose, with the 30-year yield up 25 bps in the month. The Flash Eurozone Composite PMI fell to 49.5 in May from 50.4, impacted by a reduction in services activity (48.9). Encouragingly, the manufacturing component rose for a 5th month in a row, to 49.4. In term of sectors, energy (+10.8%), industrials (+9.5%) and financials (+8.8%) performed best while materials (+1.9%), healthcare (+3.2%) and consumer staples (+3.6%) lagged the most.

Against this backdrop, the fund returned 7.3%, outperforming its benchmark by 99 bps. At the end of May, the fund is up 13.8% ytd, outperforming its benchmark by 229 bps.

Top detractors in the month were Bakkafrost (-6.5%, NOK), Invisio (-6.8%, SEK), and Andritz (-3.5%). Bakkafrost’s Q1 numbers were in line with consensus, in a quarter characterized by low salmon price development yoy and a soft premium on large fish. FY guidance was maintained. We await the upcoming CMD for more news on mid to long term targets. After a very strong Q4 the communication and hearing protection specialist Invisio delivered a poor Q1 report on all metrics from order intake to profitability reminding the market of the lumpiness of its business. The company reiterated a strong outlook based on ongoing high defence equipment demand. Andritz released somewhat lacklustre Q1 results, saved by the strong order intake up 20%. Strong orders in P&P and hydro increased the btb to 1.3x. The hydro business is hitting a strong demand cycle allowing for increasing margins. The share saw some profit taking after increasing 30% YTD.

Top performers in the month were Cloetta (+23%, SEK), Swissquote (+17.9%, CHF) and Subsea 7 (+17.5%, NOK). Cloetta released strong Q1 results, marked by continued margin improvement - particularly in the pick & mix segment - and solid FCF generation. Management expects top-line growth to accelerate, supported by Easter timing and an increased focus on “Superbrands”. With net debt at 1.1x EBITDA, we see potential upside from M&A and higher shareholder remuneration. Swissquote has risen 28% since the April 2 US tariff announcements. A beneficiary of strong crypto markets and higher trading activity, the stock is insulated from the volatility of the tariff narrative. While top lower oil prices have caused damage to the ytd oilfield services sector performance, Subsea 7 delivered a robust Q1 beat, confirming FY guidance and higher margin delivery. Subsea also confirmed a major USD 1.25 bn new order in Brazil, corroborating the still strong demand momentum, giving the group good visibility into the next two years.

Capital flows are coming back to European equities but mainly into passive large cap offerings. Despite this, the Stoxx 50 is only up 7.3% ytd while the MSCI Europe small ex UK has increased 12.7%. European small and mid caps are having granolas for breakfast! Valuations are attractive by historical standards, business models are often more niche and less prone to US tariff insecurities and there is lots of catch up potential - still. In the past 3 years, yearly average returns in the small cap space have barely averaged 5%, while large caps clocked 10%. The Bellevue Entrepreneur Europe Small Fund continues to focus on undervalued companies with a strong moat and solid balance sheets, agnostic to style and well diversified across industries, local champions and global niche players. We have initiated a new position in the Italian ELEN group, a global leader of laser solutions for medicine and industry applications.