If (once) Covid-19 is brought under control, European small caps might be the best place for investors suggests UBS.
Smallcap here is a relative term and most of UBS’s picks are very sizeable businesses, but the broker suggests a basket of these sized companies consisting of growth at reasonable value, some cyclicals and deep value stocks is the way to go.
The relative performance of these European stocks vs US peers is also at the lowest level of the past 10 years, which is an attractive entry point it adds.
There is dynamism and growth-oriented opportunities in Europe supporting these businesses, UBS adds, which has chosen its top 20 conviction list using a bottom-up, stock-picking approach.
In the nine months since the 23 March 2020 market low, European smallcaps have rallied by 65%, ranking it the second-highest of the eight post-bear-market rallies in smallcaps over the past 25 years.
This performance clearly refutes the common perception that views them as often (more) vulnerable to macro contractions; says UBS and has come despite relative performance in bear markets having actually been OK for the past 25 years.
UBS adds that since inception in 2006, its Smallcaps Top 20 has outperformed in 11 out of the past 14 years.
Choices reflected an assessment of company-specific issues such as the quality of management, the long-term strategy of the company, the controlling shareholders, the company’s weaknesses and opportunities, competitive advantages, barriers to entry.
Today, Avast was 0.4% higher at 533p, EasyJet added 3.4% to 797.6p while Electrocomponents eased 0.6% to 918p.