Stéphanie Bobtcheff

Update on Echiquier Agenor SRI Mid Cap Europe

Stéphanie Bobtcheff, CFA, Manager, José Berros, Manager, and Philbert Veissieres, Senior Analyst, La Financière de l’Echiquier (LFDE)│ March 2024

After more than two years of underperformance, the Small & Mid-Caps asset class now offers attractive discount and valuation levels. The start of the monetary easing cycle and the gradual improvement in macroeconomic indicators in Europe could signal a new round of outperformance for this asset class.


Economic outlook

The end of 2023 was excellent for the financial markets, boosted by the Fed’s decision to pivot at its December meeting, at last paving the way for several interest rate cuts in 2024. After 21 hikes between March 2022 and August 2023, it is now time for the Fed to ease monetary policy, as core inflation has returned close to its official target.

Small caps, which underperformed particularly badly in 2022 and 2023, have done well against this backdrop, with a rebound of around 14% in November and December, 4 points better than the large-cap indices.

The start of 2024 brought some volatility. Following very solid growth figures in the United States and a slightly higher than expected CPI, the market revised its expectations for interest rate cuts in 2024 down from 6 to 3 in the United States and from 5 to 4 in Europe, in line with central bank projections.

Small caps have underperformed large caps by around 4 percentage points, wiping out the year-end outperformance. The discount of small and mid-caps to large caps has reached its highest level since the 2009 financial crisis at around 5%, compared with a historical premium of 15% to 20%. With a 2024 P/E[1] of 12.5x, compared with a very long-term average of 16x (MSCI SMID Europe), the asset class has returned to its lowest valuation since the 2012 eurozone crisis.

In Europe, leading macroeconomic indicators (PMI, IFO), to which Small Caps are partly correlated, seem to be improving again. In addition, interest rate cuts are likely to materialise quickly, albeit with some delay, in the wake of falling inflation. We believe that the tentative return of flows into the asset class and the increasing number of mergers and acquisitions in our sector are interesting leading indicators.


Against a volatile economic backdrop, our companies have once again demonstrated their ability to grow their earnings at a sustained pace, with an average increase of 9.7%[2] in operating profits in 2023. This performance is in line with the increase in the fund’s net asset value in 2023.

The outlook for 2024 remains bright, with earnings growth of around 10% currently expected. The message delivered by our companies when reporting their annual results was upbeat. Most of our companies operate in structural and resilient growth markets. Those that are more exposed to economic conditions should benefit from the expected economic recovery in the eurozone, supported in particular by the easing of monetary policy.

Investment strategy

The management team has taken a number of steps to deploy some of the liquidity and better position the portfolio. We have increased sector diversification into semiconductors (ASML, BE Semiconductor Industries), professional catering equipment (Rational) and the medical sector (ALK Abello). Exposure to growth stocks whose valuations were becoming attractive again (Indutrade, Nibe) has been increased. The management team also increased exposure to stocks that were heavily penalised in 2023 but which are expected to regain more favourable momentum in 2024 (Beijer Ref, Spirax).

The stocks in the Echiquier Agenor SRI Mid Cap Europe fund currently offer reasonable valuations compared with the average over the last seven years, plus robust earnings growth prospects well above the benchmark. We are confident that our rigorous investment process, based on strong selectivity and a cautious approach to valuation, will continue to create value over the long term.

Disclaimers: Past performance is not an indication of future performance. The stocks referred to are given by way of example. Neither their presence in the portfolio nor their performance are guaranteed. The opinions expressed in this document are the authors’ own. LFDE shall not be held liable for these opinions in any way. The fund is primarily exposed to the risk of capital loss, equity risk, small and mid-cap investment risk and discretionary management risk.
For more information on the characteristics, risks, and costs of these funds, and before investing, we invite you to read the regulatory documents available on our website.
[1] Price-earnings ratio
[2] Capital IQ