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European small caps: escape the closing jaws of death

 

  • “Maybe it’s counterintuitive, but I have better support at Mirabaud [than at SLI, his previous employer],” says Nicholson. “Having two people working on the fund fulltime is quite different. I had a lot of people and resources at my previous firm, but nobody had that specific focus on small caps.”
     
  • Nicholson invests according to a German adage: Lob die Langweiler (praise the boring). “We do get quite excited when we find companies that make quite mundane products and are generating high returns and high growth that other investors would perhaps find boring,” he says. “The idea is we are unearthing hidden champions that are below the radar of other investors.” 
     
  • The fund manager, who used to run a similar strategy at Standard Life Investments for 15 years, believes the valuation gap between growth and value stocks has become somewhat extreme now. “We are struggling to find good valuations in growth and quality names at the moment. So I’m afraid we are at that phase in the market that I call the jaws of death, where growth stocks have outperformed for so long now while value stocks have underperformed.” Consequently, Nicholson is finding better ideas in value at the moment, such as the photographic equipment maker Agfa, even though he still has a small growth bias in his portfolio.

Dylan Emery

Dylan Emery is the group editorial director of Last Word. He is one of the founders of the company and he created International Adviser, Portfolio Adviser and Expert Investor. His primary responsibilities...

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