Micro cap strategy records highest outperformance since launch

Jonas Liegl focusing portfolio more strongly on Europe

Scandinavia has highest weighting after DACH region

Frankfurt, January 25th, 2021: Lupus alpha Micro Champions (LU1891775857), which invests in small-cap European companies, achieved the highest outperformance since its launch over the past year, beating its benchmark index by almost 24%. The mutual fund ended 2020, the year of the coronavirus crisis, up 32.5% overall. The fund profits from its positioning in companies that address structural growth issues – and thus trends that have intensified further during the coronavirus crisis, such as digitalisation, working from home and e-commerce. Portfolio manager Jonas Liegl has also focused the portfolio more strongly on European stocks, while the proportion of equities from German-speaking countries has fallen significantly.

Lupus alpha Micro Champions focuses on companies in the pan-European region whose market capitalisation is below EUR 750 million at the time of the initial investment – a segment with around 1,500 individual securities. Many of these companies are in an early phase of growth, their business model has proven to be a success, and their growth potential is predicted to be above average. While this focus remains unchanged, Jonas Liegl has significantly adjusted the regional distribution of stocks within the fund since becoming portfolio manager on 1 July 2020. The weighting of Scandinavia has almost trebled to 36%. The United Kingdom, not previously represented in the portfolio, now has a weighting of 6%. As part of this reconfiguration, the proportion of stocks from German-speaking countries (the DACH region) has fallen from just under 59% to 38%.

Geographic weighting in Lupus alpha Micro Champions (H2 2020)

Grafik zur Visualisierung der regionalen Gewichtung des Lupus alpha Micro Champions in 2020

Source: Lupus alpha

“Scandinavia is renowned for its lively start-up culture and large number of innovative companies with internationally scalable business models that appear extremely open to the prospect of an IPO,” said Jonas Liegl, portfolio manager of Lupus alpha Micro Champions. “The region also has extremely high transparency and corporate governance standards,” he added, highlighting that a great deal of investor capital is flowing into this region. Conversely, Liegl explained that while the United Kingdom has the largest proportion of pan-European micro caps by market capitalisation at around 30%, only a few companies have scalable business models – which is a prerequisite for investment. As a result, the UK’s weighting within the fund is much lower.

Individual stock selection remains a decisive factor when building the portfolio. Despite significant market turbulence and a rapid shift in preferences, Lupus alpha Micro Champions achieved its highest outperformance in 2020 at almost 24%. This was achieved with active stock picking and a consistent focus on stocks with high levels of structural growth, particularly those from the Industry 4.0, e-mobility, healthcare, e-commerce and gaming sectors. Uncertainty in the capital markets remains high in 2021. Such phases are always associated with specific return opportunities. On the positive side are the economic programmes currently underway worldwide as well as the slowly diminishing coronavirus crisis. Increased activity is also expected on the M&A market with an opportunity for takeover premiums. In 2020, the fund was already profiting significantly from high levels of IPO activity among European small and mid caps, a market in which volumes have once again risen sharply since 2017.

Jonas Liegl: “The potential of many stocks is overstated; their prices are have already risen a long way. At the same time, companies with solid balance sheets have been penalised and are still short of their 2019 valuation levels even though they have done their homework. They will benefit from the economic upturn.” According to Liegl, this means that the challenge now is to realise profits and channel the free capital into undervalued companies. This prevents him from relying purely on cyclical recovery stocks. Liegl would much rather have companies in the portfolio that are winners over a five-to-ten-year horizon. The distinct alpha potential of such stocks still offers active managers opportunities to generate added value compared to the market.