A focus on Mid & Small Caps still promises better rewards

Outlook & Strategy: While growth worries have continued to ease, the ongoing speculation for a Fed rate hike in December, rising inflation expectations, the recent spike in longer-term core government bond yields and political risks (US elections, Brexit uncertainty, Italy referendum) may still provide some headwinds for equities in the short run. While this provides a somewhat lackluster backdrop for now, we nonetheless continue to assume that the further downside in consensus forecasts is rather modest following the revisions triggered by the Brexit vote. From that angle equities may enjoy some tailwind over time, as the usual growth disappointments seen over the last few years may be less pronounced going forward. We therefore would consider setbacks in equity markets as a buying opportunity. Overall we confirm our preference for Mid & Small Caps as we continue to think that the segment offers better value than Large Caps.

Ins & Outs: With this publication we include Deutsche Wohnen, Galenica, Krones, Wirecard and Valiant and remove PORR. We already have added Aurubis, BRAIN and Zalando earlier, while LANXESS, Givaudan, Fresenius Medical Care, HeidelbergCement and zooplus have been dropped. Following all these changes our portfolio now consists of 16 stocks.

Performance: Since the last update on 3 August 2016 our Top Picks list delivered a performance of 7.2%. Because our benchmark index STOXX Europe 600 was up only 2.5% this results in an outperformance of 4.7%. Since inception on 7 January 2013 our portfolio returned 79.5% in absolute terms and 46.4% in relative terms.

Tops & Flops: Since the last update, the strongest Alpha has been delivered by LANXESS (+24.2%), PORR (+18.5%), HeidelbergCement (+14.2%) and BRAIN (+10.3%). Contrary to that, Heidelberger Druck (-13.3%) trailed our benchmark the most. Since their respective inclusion, Komax (+51.9%), PORR (+38.1%), LANXESS (+30.0%), Heidelberger Druck (+18.9%) and BUWOG (+15.2%) were the strongest outperformers, while Adecco and Fresenius Medical Care underperformed most.