European Smaller Companies Equity Fund (2024)

The current investment environment continues to be marked by a high degree of geopolitical and economic uncertainty. There is a wide range of potential outcomes for consumer and industrial confidence and expenditure, inflation, and central bank actions.

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At such times, we believe it is even more important to remain focused on fundamental smaller-company research where we can have an edge. While an awareness of the macroeconomic and political environment is necessary, we look to discover those companies that can be much larger in five to 10 years' time whatever transpires.

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European smaller-company shares have pulled back sharply this year. Even so, recent developments are likely to continue putting pressure on costs, supply chains, and demand, weighing on corporate earnings across most sectors.

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Central banks have signaled that they are determined to tighten monetary and fiscal policy in Europe and elsewhere, prioritizing the fight to bring down inflation?which we think could persist at a high level for some time? over economic growth. In our view, this could be a less supportive backdrop for equity markets.

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The multiple dramatic events of the last few years have been a trigger for transformations across many industry structures. This is a dynamic that we consciously look to exploit, and we are focused on identifying those companies that will be material beneficiaries of these forces. Genuine insights here will be valuable as the market is wrestling with considerable uncertainty as to how individual companies are positioned.

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In these uncertain times, it is important to be prepared for market dislocations triggered by events. The market rotation and volatility are presenting us with some new opportunities, although there are fewer of them in sectors that we think have structural challenges and where we are meaningfully underweight.

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We are also focused on defending those holdings that have recently been sharply derated but where the business remains fundamentally robust and may even be stronger after recent events. As we enter a slower economic environment, the investment attractions of smaller companies that do have a more sustainable growth outlook should become stronger.

Our approach incorporates intensive, fundamental research seeking to identify small and mid-sized companies capable of sustaining above-average, long-term earnings growth and selling at reasonable prices. We aim to discover attractive companies at an early stage and hold them while they compound appreciably over the long term. The promotion of environmental and/or social characteristics is achieved through the fund's commitment to maintain at least 10% of the value of its portfolio invested in Sustainable Investments, as defined by the SFDR. Additionally, we apply a proprietary responsible screen (exclusion list). The manager is not constrained by the fund’s benchmark, which is used for performance comparison purposes only.

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