蜜豆视频

Our top-down conversations with investors through the late stages of 2024 continued to focus on whether 2025 could be the year that sees a reversal of recent SMID underperformance. However, we have been having similar conversations over the last 12+ months, and our sense is that many investors remain cautious. Indeed, while SMID stocks have outperformed large-caps over the last 20 years by >100% in Europe, they have underperformed since the start of 2022 by >20%. It is notable that the outflows from dedicated Pan-Euro SMID funds have stabilised, but we have not seen the major recovery in terms of assets allocated to SMID, share prices, valuations or trading volumes that some may have hoped for through 2024. Our view continues to be that there may be scope for a general SMID recovery, but that outperformance is likely to be driven primarily by certain structural-growth or "mega" themes (e.g., AI, semiconductor manufacturing, decarbonisation/energy transition, healthcare/life sciences) and certain geographies (the UK in particular screens as being very cheap with good growth prospects and high domestic/sterling exposure, with some investors also very focused on Germany in the context of the election and the potential for a domestically exposed recovery and a ~20% underperformance from the MDAX vs DAX last year).

Following prolonged underperformance and valuations at extremely depressed levels, our strategy team has called out European and UK Small & Mid-Caps as a key theme for 2025, driven by key factors such as:

1. Ongoing monetary easing which should benefit smaller companies that typically have higher exposure to short term/floating-rate bank debt
2. Domestic/European exposure which reduces potential risk around changes in US and/or China鈥檚 trade policies and possibly offers more resilient GDP prospects
3. SMID鈥檚 above-average exposure to quality-value and growth-value styles (73% of European stocks in the 鈥淨uality+Growth+Value鈥� bucket are <鈧�10bn market cap i.e., SMID, vs only 48% in the 鈥淨uality+Growth鈥� bucket).

We also note that consensus expectations for both earnings and margins are higher for Pan-Euro SMID stocks vs large-caps in 2025E.

We look at Morningstar monthly fund flow data, which we believe is a good indicator for flows across the industry and we can analyse whether SMID funds are seeing more inflows or outflows over time. November saw outflows of 2.3% of AUM (-1.4% ex-UK) on a trailing 12m basis, only a touch higher than September and October which saw outflows of "just" 1%, levels not seen since Mar-22. We note also this is now the seventh consecutive month of lower SMID outflows vs large-cap outflows, with a 2ppt difference.

Across Europe (including the UK), SMID stocks have underperformed large-caps by 22% since the start of 2022, but that gap has narrowed and underperformance through 2024 was ~2.5%. European SMID stocks are trading on a 12m forward PE of 12.5x, a ~5% discount to large-caps. However, over the last 17 years, the Stoxx Mid 200 has traded at an 11% premium to the Stoxx Large 200, compared to its 5% discount today.