Bellevue Entrepreneur Europe Small (Lux)

European small and mid caps, as measured by the MSCI Europe Small Cap ex-UK, rose 5.9% in the month, outperforming most of the large cap indices (SXXR 3.3%, S&P 500 4.8%, MXWO +4.2%). Except for lagging small caps indices, May marked a new historical record for most Western indices, underpinned by strong Q1 results and a Fed meeting that proved less hawkish than anticipated. US inflation eased, with core CPI down to 3.6% from 3.8% in April. The Swedish Riksbank was the second G10 central bank to cut rates, fuelling anticipation of other cuts to follow soon, including the ECB in June. The Eurozone flash PMI was up for the 7th consecutive month, rising to 52.3 in May from 51.7 in April, while core inflation was up 20 bps mom to 2.9% in May, following nine consecutive months of decline. In term of sectors, telecommunications (+9.6%), utilities (+8.9%) and energy (+8.3%) performed best while personal care, drug and grocery stores (+0.1%), automobiles and parts (+0.9%), and food, beverage and tobacco (+2.7%) lagged the most.

Against this backdrop, the fund rose by 5.4% (EUR / B shares), underperforming its benchmark by 42 bps. This brings the performance to 16.1% over the first five months of 2024, a 767 bps beat vs the benchmark (+8.4%).

Top detractors in the month were BFF (-24.0%), Bakkafrost (-9.9%), and Schoeller-Bleckman (-10.4%). Banca Farma Factoring plunged on May 10 after the BOI intervened on issues of accounting classification of credits attached to the public administration (i.e. performing vs temporarily overdue). While not a game changer, this affects RWA and subsequently the CET1 ratio of the company and potentially its dividend payout policy. The management is in talks with the regulator but it will probably take until Q4 for investors to have clarity. The board has not changed its dividend guidance even in the event of an increase in RWAs. Bakkafrost delivered a solid set of Q1 figures, with EBIT beating consensus by 2%.Volume guidance for the FY was reiterated, but with delivery tilted towards H2. Later in the month, the ISA outbreak in the Faroe, although contained, shed another 4-5% off EPS24 consensus numbers. Midterm we expect a structurally improving situation in Scotland, leading to higher margins for the group.  
        
Top performers in the month were Neoen (+32.3%), Wartsila (+10.6%) and Nexans (+13.0%). Neoen, the French IPP and 3rd largest position in the fund, was subject of a takeover offer from Brookfield, at a premium of 27% over the previous closing price. After Majorel, Neoen is the 2nd company of the portfolio being taken over in a year, another sign that there is plenty of value in the European small caps universe. Wartsila continues its ascent and is top performer for the second month in a row, rising 48% ytd on the back of 2024 consensus EPS up 21%. Lastly on Nexans: While order books are fully loaded until 2030 in high voltage, rising grid investments are increasingly visible, attracting attention to a secular trend that will impact positively medium voltage players like Nexans.

Eurozone GDP grew by 0.3% in Q1. This was surprisingly strong, in fact the strongest growth since Q3 2022 when the energy crisis started. Even Germany bottomed out and leading indicators point to a continuation of the recovery. This brings back investor’s appetite for small caps, cyclicals and value. The latest positive earnings season and rising EPS revision across markets have been of further support. Peter Oppenheimer from Goldman Sachs praised this week the benefits of diversification within equity portfolios in what he called a «Pick and Mix» style. We couldn’t agree more. The end of the zero interest rates regime allows for a barbell approach mixing quality profitable growth stocks together with selected deep value (but also quality) names. In this spirit we consciously combine GARP with growth and value in our Bellevue Entrepreneur Europe Small portfolio.