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The big guns in European small cap

In this week's data crunch we highlight the firms expertly exploiting the vast array of opportunities in European small caps.

Once perceived as a lucrative recovery play, the European Small and Medium Companies equity sector has seen nearly £2.5 billion in estimated outflows in the year to date.

Last year saw the MSCI Europe Small Cap index gain 17.72%, outperforming its all cap counterpart by 14.41 percentage points. The sector has seen some volatility this year. Set back by the January sell off and Brexit pain in June, in the year to date the MSCI Europe Small Cap index has narrowly underperformed the MSCI Europe by 0.31 percentage points.

Political uncertainty has also spread. The future of the UK’s relationship with the European Union is yet to be formally negotiated, Spain has not yet formed a government, and Italian prime minister Renzi’s referendum on constitutional reform hangs in the balance.

With inflation stubbornly low however, there is general consensus that the European Central Bank monetary policy will remain accommodative for quite some time.

Short-term swings and overreactions will create opportunities within the small and mid cap space.

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Once perceived as a lucrative recovery play, the European Small and Medium Companies equity sector has seen nearly £2.5 billion in estimated outflows in the year to date.

Last year saw the MSCI Europe Small Cap index gain 17.72%, outperforming its all cap counterpart by 14.41 percentage points. The sector has seen some volatility this year. Set back by the January sell off and Brexit pain in June, in the year to date the MSCI Europe Small Cap index has narrowly underperformed the MSCI Europe by 0.31 percentage points.

Political uncertainty has also spread. The future of the UK’s relationship with the European Union is yet to be formally negotiated, Spain has not yet formed a government, and Italian prime minister Renzi’s referendum on constitutional reform hangs in the balance.

With inflation stubbornly low however, there is general consensus that the European Central Bank monetary policy will remain accommodative for quite some time.

Short-term swings and overreactions will create opportunities within the small and mid cap space.

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Old Mutual Global Investors

Ian Ormiston manages the Old Mutual Europe (ex UK) Smaller Companies fund. He has more than eight years' experience in the sector, and over the past three, has returned 56.64%, outperforming the average manager’s 41.34% return. Remaining cautiously optimistic, Ormiston has gradually been drifting towards a more cautious stance. Finnish consumer staples firm Tokmanni Group is the fund's top holding at 2.5%.

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Alken Asset Management

Nicolas Walewski manages the Alken Fund – Small Cap Europe fund. Over the three years to the end of August, he has returned 51.02%, outperforming the average equity – European small and medium companies' manager by 9.68 percentage points. Alken’s largest allocation is to consumer discretionary, constituting 30.86% of his portfolio. In August, the fund saw strong performance driven by companies in the portfolio delivering good results and providing a confident outlook.

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BMO Asset Management

Sam Cosh manages the F&C European SmallCap fund, and the F&C European Small Cap ex UK fund. The F&C European SmallCap fund is the larger. His largest sector allocation is to industrials, making up 35.3% of his portfolio. With more than six years' experience in the sector, Cosh has returned 108.49% over the five years to August end, leaving the average manager’s 89.54% return trailing behind.

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Baring Asset Management

Baring Asset Management offers the Baring European Select Trust fund, and the Baring European Opportunities fund. The former, managed by Nicholas Williams, is larger. He has more than 15 years' experience in the sector, and over the past five has returned 110.96%. Williams sees a positive outlook for the asset class as he says European smaller companies remain attractively valued relative to other asset classes.

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