Investing in small and micro-caps – case studies

Over the 20-year history of the Quaero Capital Funds (Lux) – Argonaut fund (the Fund), we have adhered to our investment philosophy and fundamentals/value approach of investing in good companies at great prices. Our investment process is based on primary research, which is necessary for investment in smaller companies that communicate less and have limited coverage by brokers. Over the years, we develop an intimate knowledge of the companies we invest in.

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Navigating the divergence: a reflection on the striking dynamics of small/micro-cap investments

The year 2023 saw significant stock market gains worldwide, but for anyone investing in European Small/Micro-cap, an invitation to the party was notably absent. Why bother trying to identify winners from thousands of small-cap stocks when you can simply invest in a few of the largest, best-known companies globally and achieve better returns?

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2024 will be a pivotal year

1. Emergence of TARA, after the end of TINA

The inflationary shock of 2021-22 encouraged the emergence of a correlation between equities and bonds in the wrong direction (decline in both equities and bonds). The disinflation of 2023 has already moderated this correlation, and fixed income and equity products have once again become diversified. We have gradually moved from an end-of-TINA (There Is No Alternatives) rationale, with the attractiveness of money market products, to a TARA (There Are Some Reasonnable Alternatives) rationale.

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Bonds are (finally) on a roll

The situation on the euro bond market has changed completely since March. As can be seen from the chart below, while most yields on the various credit qualities and maturities were below 3%, these levels have now completely disappeared. In most cases, yields are between 3% and 5%, and even exceed 5% for ratings below BB+.

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The sun should shine in Japan

Looking back to 2023

The restructuring of Japanese companies, which began a decade ago with the aim of improving profitability, cash flow and returns to shareholders, accelerated last year under the impetus of a wave of management buy-outs, hostile takeovers and interventions by activist shareholders. In 2023, for example, activist shareholders forced companies to make payments to their shareholders on sixty occasions.

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Clean Energy: our 4 convictions for 2024

2023 will go down in history as a particularly difficult year for the renewable energy sector. The geopolitical situation caused companies involved in fossil fuels, the only ones capable of responding quickly to shortages, to take a dive. Between virtue and the urgent need to find energy sources to replace Russian exports, the market’s choice was quickly made.

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Small & Mid caps: Beware of complacency

Despite some optimism among market participants, the macroeconomic environment remains rather weak and growth is set to slow in 2024. The big question is whether this will be a soft landing or a harder one. Caution therefore seems to be the order of the day in the first half of the year, even if price falls will provide opportunities to add to positions.

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Convertible bonds: the comeback

Key points for 2024

We are sailing through particularly troubled waters at the moment, with economic pitfalls but also major geopolitical whirlwinds, between the war in Ukraine, unrest in the Middle East and tensions between China and Taiwan. On top of this, there are important electoral deadlines this year, not only the US presidential election, but also elections in the European Union, Taiwan, Russia and India.

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