Bellevue Entrepreneur Europe Small

European SMid caps, as measured by the MSCI Europe Small Cap ex-UK Index, increased 2.3% in the month, outperforming European and US broader markets (SXXR 1.3%, SPX -0.1%). July saw global markets move into renewed volatility, although sentiment improved toward month-end. Re-escalating US-Iran tensions pushed oil higher. Inflation concerns weighed on bonds, while the Fed’s limited guidance accelerated curve steepening. The 30-year Treasury yield reached 5.27% and the 10-year Bund hit 3.20%. Sector-wise we witnessed a sharp rotation out of Technology driven by AI related valuation concerns and some volatility in the semiconductor space. With their lower exposure to tech and AI, European markets proved more resilient with several broad indices remaining close to their highs. The Eurozone Composite PMI improved to 52 in July, the strongest reading in 5 months, with improvements in both services (51.6) and manufacturing (52). Q2 GDP expanded by 0.4% qoq in the Eurozone, beating market expectations. In terms of sectors, Materials (+7.6%), Financials (+6.6%) and Consumer Discretionary (+2.8%) performed best while Information Technology (-7.3%), Utilities (-2.1%) and Consumer Staples (+0.4%) were among the weakest-performing sectors.

Against this backdrop, the Fund (B-share, EUR) was up +0.6%, underperforming its benchmark by 176bps. YT-July-end the Fund is up 9.5% with an outperformance of 142 bps.

Main detractors in the month were Besi (-31%), Jenoptik (-20.6%) and Nordex (-16.8%). Nordex came under pressure amid uncertainty around Germany’s forthcoming energy package, which could introduce constraints on onshore wind development to ease grid congestion in the north. While the final legislation remains unclear, the current draft appears broadly supportive. The company’s H1 results once again exceeded expectations, with solid revenue growth and further margin improvement. Both Besi and Jenoptik retreated amid a broader rotation away from AI-related stocks. Besi nevertheless reported a strong Q2, with order intake well ahead of expectations and continued momentum in photonics, hybrid bonding and DC applications. The encouraging Q3 guidance points to further revenue growth and earnings upside. Jenoptik reports later in August and should deliver strong order intake, while its valuation at <10x 2026 EBITDA provides a rare valuation cushion within the sector.

Top contributors in the month were Sopra Steria (+31.1%), Cloetta (+14.4%) and Bankinter (+8.8%). Sopra delivered a stronger-than-expected H1, driven by better organic growth, prompting an upgrade to its FY26 guidance. While its exposure to the sectors of Defense, Aerospace and Financial Services remains a key advantage, the encouraging trends seen across IT services should gradually ease concerns about the sector’s ability to grow in an AI world, leaving scope for rerating from very depressed valuation levels. Cloetta reported Q2 EBIT 17% ahead of expectations, supported by strong gross-margin improvements, resilient growth and a sharp recovery in free cash flow. Management’s confidence that the 12% EBIT-margin target could already be achieved in 2026, together with the forthcoming US rollout reinforced expectations of further earnings upgrades. Bankinter released Q2 beating expectations. Results confirmed resilient NII (+5% yoy) while fees surprised on the upside (+12% excl. ao).. Bankinter raised FY26 fee guidance from HSD to LDD growth. Spain is also a bright spot in Europe with GDP growing 2.8% qoq in Q2 and the composite PMI reaching 56.5% (+3.2pts) prompting increase in ST growth expectations. At 10x forward P/E the risk reward remains attractive for a bank compounding EPS at 11% and expanding ROTE towards 20%.

The European Q2 reporting season is coming to an end with more than 2/3 of companies reported. Despite all anxieties and macro backdrop, the season has been stronger than expected both in terms of earnings growth and beat rates. This has also been true for European Small & Mid caps with a notorious lack of profit warnings. In fact, SMID caps have shown slightly better delivery so far than large caps and many companies have shifted their cautiousness to more constructively optimistic narratives. We even witnessed a relevant number of guidance upgrades. These positive developments have prompted positive earnings revisions also outside the energy sector and bode well for a further good performance of European SMID in light of the still attractive valuations.