Bellevue Entrepreneur Europe Small

European small & mid caps, as measured by the MSCI Europe Small Cap ex-UK, rose 5.3% in January, with Europe outperforming (SXXR +6.9%, S&P 500 +2.3%, MSCI World +3.3%). Markets kicked-off 2025 with a strong performance, despite two notable risk-off episodes. DeepSeek raised concerns about both US AI supremacy and US tech valuations, underscoring the big reliance of global markets on a limited number of stocks. The Trump administration finally imposed (or threatened to impose?) steep tariffs on China, Canada and Mexico, causing markets to weaken by month end. Treasury yields reached levels near their two-year peaks, though later pulling back following encouraging inflation data. On a positive note, Europe PMIs showed signs of improvement, with the composite index rising above 50 for the first time since August 2024. While still in negative territory, the manufacturing PMI increased to 46.1. Meanwhile, the services PMI slightly dipped to 51.4 but continued in expansion territory. In term of sectors, energy (+7.9%), materials (+7.8%) and consumer discretionary (+6.8%) performed best while consumer staples (+1.8%), real estate (+3.2%) and industrials (+3.4%) lagged the most.

Against this backdrop, the fund increased 5.6% (EUR / B shares), outperforming its benchmark by 24 bps.

Top detractors in the month were Besi (-5.7%), Nexans (-9.6%), and U-blox (-7.5%). Besi suffered from mixed news flow in the semiconductor sector, with the announcement of the gigantic US Stargate program followed by the sudden emergence of DeepSeek, a Chinese tool that could accelerate the development of AI but also potentially reduce computing needs. On the other hand, TSMC’s encouraging capex guidance for 2025 as well as ASML’s initial indications suggest that the WFE sector should be back to growth. Nexans suffered from negative news flow regarding US offshore wind, despite limited exposure to this market. The company will reach its raised guidance for 2024 and should continue to grow in 2025, sustained by the execution of its EUR 6.2 bn backlog in both energy and transmission. U-blox failed to sell its loss making communicate division, which will be instead gradually phased out. This was a bit disappointing but not a game changer. Focus should now be on the remaining positioning activity, where U-blox is the clear leader, boasting strong normalized profitability and double digit expected growth in 2025. 

Top performers in the month were Carl Zeiss (+28.2%), Swissquote (+13.8%) and Invisio (+19.2%). Carl Zeiss announced the timely approval of Visumax800 for the Chinese market. The group is keen to reverse its negative performance in the region and we noticed a more optimistic undertone during our two January meetings with the company. Swissquote published strong prelims with top line and PTP above guidance. Importantly, AuM at CHF 76 bn were 4 bn ahead of consensus with strong inflows in H2 sequentially 12% vs H1. The group seems to have finally benefited from client wins in Switzerland after the UBS/CS merger. Invisio came out with a reverse profit warning, pre-indicating sales of SEK 594 mn (+72%) and EBIT of SEK 195 mn (32.8% margin) for Q4 2024, 32% and 71% above consensus. Invisio’s business model provides significant operating leverage, which explains the margin beat. Management did not provide guidance for 2025, but the CEO mentioned the company expects continued strong sales and order intake for 2025.

Today, the weight of the US in the MSCI world is 77%, whereas the US commands 25% of ww GDP. In the context of compressed equity risk premium and unprecedented level of US market concentration DeepSeek is a factor increasing volatility and reminding investors of the benefits of diversification. Diversification yes but what about the risk of US tariffs on European exporters? The average European company generates today only 38% of its revenues in Europe, 8% in China and 13% in Asia-Pacific. Another 26% is generated in the US. According to a MS analysis, 9% are services and 11% local for local, meaning European companies producing in the US would also eligible for tax rebates. 7% of revenues stem from goods exported to the US whereas if we exclude defence, energy and pharma it boils down to less than 3%. Surely some sectors are more exposed than others and one needs to take a close look at each company. You’ve seen us write extensively about the increasing delta in valuation between the two continents for the past year, well never say never, January saw the 2nd biggest monthly inflow into European equities in 25 years according to BofA’s monthly statistics.