Size is no barrier to opportunity
Small and medium-sized companies in Europe may not be the obvious destination for accessing big global investment themes but with strong teams of proprietary research analysts, we think this is an excellent location. Europe is home to a wide opportunity set of world class companies with global reach. If you can unearth them early, the compounding effect of high returns on an enduring basis can deliver strong investment outcomes. As fund managers our aim is to leverage our research capability to identify young businesses, at attractive valuations, before they realise their full potential and the market closes the valuation gap.
Four Durable Themes
Four durable themes guide our investment choices: technological innovation, health and wellness, sustainability, and emerging markets growth. On the theme of technological innovation, many global investors have gone down the obvious route of US large caps, pushing the valuations of a handful of stocks to excessive levels.
Four Durable Themes
Four durable themes guide our investment choices: technological innovation, health and wellness, sustainability, and emerging markets growth. On the theme of technological innovation, many global investors have gone down the obvious route of US large caps, pushing the valuations of a handful of stocks to excessive levels.
In the small and mid-cap European space, we have accessed technological advances via companies such as ASM International. This Dutch headquartered multinational, which specialises in the design, manufacture, sale and service of semiconductor wafer processing equipment was not well known when we bought it, in 2010. Our research led us to believe that the company had good potential. We liked its management team and had confidence they possessed the necessary skills to drive the business onward. Fast forward to 2023 and many other investors have now caught up with our thinking. A more recent entrant to the portfolio, in this space, is BE Semiconductor Industries, known more commonly as Besi. This too is a Dutch multinational.
Nordic Semiconductor, which specialises in designing ultra-low-power wireless communication semiconductors and supporting software, is another interesting business in the technological innovation space. End-user applications that use its technology are very broad and include consumer electronics; wireless headphones, wireless mobile phone accessories, wireless gamepads, intelligent sports equipment; and wireless voice-audio applications. In the industrial and commercial sectors it products are used in health tracking, asset tracking, metering (gas/water/electricity), smart home and building automation among other things.
Health and Wellness
Overlapping the themes of technological innovation and healthcare we have Swedish company Surgical Science. A relatively new holding for us, the company is a virtual reality software provider that helps surgeons train for remote, robotic, surgery. Presently, robotic assisted surgery has only around 5% penetration globally but as recognition and confidence, in the often- better outcomes, acquires greater awareness, we think the potential for Surgical Science, a leader in this niche area, is huge.
Staying in health and wellness and another Scandinavian constituent in the portfolio is Mips. Founded in 2001 by five specialists in biomechanics in Stockholm, Mips, which stands for Multi-directional Impact Protection System, is a patented technology that mimics the brain’s own protective structure. Presently it is used mainly in sports helmets. In a helmet equipped with the Mips safety system, a low-friction layer allows the helmet to slide relative to the head, resulting in a reduction of the damaging rotational motion that may otherwise be transmitted to the brain after the head has come to an abrupt stop following impact. We believe there is much further room for the application of Mips’ technology.
An Evolving Landscape
Sustainability has moved up the investment agenda in recent years and new businesses are being founded to try and effect solutions to the many challenges the planet faces. Sdiptech, a Sweden-based engineering company and provider of technical services and products for urban infrastructures, is one such business that we have identified as being a future leader in this space. Its activities are split into two segments: tailored installations and niche products and services. In the tailored area, it offers cooling installation services, wastewater treatment and solutions for electric automation amongst other things. In the niche part of its business, services include electrical power monitoring, water and heat monitoring and decontamination services.
Finally, just touching on emerging markets growth. Many of the companies that we have discussed above have products and services whose application, when it makes its way to emerging economies, has huge potential. More immediately, however, we are accessing growth in these economies via more conventional routes. Flying in to meet the growing demand for travel among eastern European consumers is Wizz Air. The ultra low-cost carrier, which has its head office in Budapest, is taking market share from old nation state carriers which are comparatively less flexible in their business models, often have older aircraft fleets and higher operating costs.
Investing in small and medium cap stocks is a discovery process. And a particularly rewarding one when you uncover companies, with exciting products and services, whose shares are still available at a fraction of the cost of their large cap peers. Especially peers in expensive markets such as the US.
