In recent years, small and medium-cap companies (SMID caps) have fallen out of favor with investors, mainly due to the dominance of large corporations in financial markets. However, according to Denis Callioni, European equity analyst and portfolio manager at Comgest, these companies still offer great long-term growth potential.
The role of SMID caps in the European economy
Small and medium-sized enterprises (SMEs) are the backbone of the European economy, accounting for nearly two-thirds of all jobs and more than half of the continent’s added value. Despite being perceived as more vulnerable due to higher debt exposure and limited regional footprints, many of these companies demonstrate lasting competitive advantages comparable to those of large multinationals.
A prime example is the semiconductor industry, where companies like VAT Group stand out for their leadership in highly specialized niches. This Swiss manufacturer of vacuum valves is a key supplier to companies like ASML, Intel, and Samsung. With a portfolio of over 10,000 products, VAT Group is well-positioned to benefit from technological trends like digitization and artificial intelligence, driving consistent growth in the sector.
Innovation in niche markets
SMID cap companies often excel in niche markets due to their agility and commitment to innovation. One notable example is Carl Zeiss Meditec, a leader in eye-related medical technology. Its laser solution SMILE for refractive surgery is less invasive than traditional methods, addressing the growing global demand for myopia treatments, which is expected to affect nearly 50% of the world’s population by 2050.
A new perspective on investments
Declining inflation in the eurozone could be a turning point for small-cap companies. Despite being penalized in recent years, companies like VAT Group and Carl Zeiss Meditec prove that investing in quality companies with solid fundamentals can offer significant long-term returns. These businesses have shown resilience during economic crises, positioning themselves as strategic choices for those seeking sustainable growth opportunities.
Conclusion
Investing in European SMID caps can be a winning choice for those looking to diversify their portfolio and focus on innovative companies with long-term growth potential. What is your opinion on the opportunities offered by these companies? Share your thoughts in the comments below!
