As Greece tackles its structural challenges, value investors return

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Value investors are returning to Greece, hopeful that if improving macro economic conditions persist, the coming year will prove a major boost to Greek small cap stocks.

Uncertainties certainly persist: the government has still to agree a post-bailout strategy with the Troika of lenders (made up of the International Monetary Fund, The European Commission and the European Central Bank). There is an estimated EUR 1 billion shortfall in Greece’s proposed 2018 privatisation programme (which may impact personal tax and VAT measures), and an election cycle is set to begin soon.

But there is growing evidence of a widespread economic recovery and a large reduction in country risk due to more positive relations with international creditors. Ratings agency Standard & Poor’s has upgraded Greece by a notch to B with positive outlook and for the first time in the decade since the global financial crisis, January saw monthly inflows into Greek domestic mutual funds.

A sustained recovery would be extremely supportive to smaller companies, which are largely overlooked by foreigners who go for the big stocks. The New Europe strategy looks more closely at smaller companies which are better known by local fund managers. The valuations in this space are still reasonably cheap and illiquid, so it does not take much to move them higher.

The New Europe strategy is committed significantly to the market, with 25-30% invested there. It is a big exposure but the managers have been on the ground in Greece for many years. Across central and eastern Europe, this is where one can now find the most opportunities. Larger stocks seem fairly valued but it is an excellent stock picker hunting ground, with small caps cheap and orphaned.

The strategy invests in a differentiated, bottom-up, value portfolio that is not at all quick or easy to replicate and a 100-200%+ upside can be expected in several holdings.

Using a very focused and disciplined Value Investment philosophy, the QUAERO CAPITAL Smaller Companies Team aims to invest in smaller European companies that trade at a substantial discount to both their intrinsic value or to their long-term profit potential. The small cap team is one of the most experienced in its field and operates in one of the least researched part of the European markets. This dedication to investing “under the radar screens” and to a very research-intensive process has produced very credible results over the past 15 years.

The Argonaut strategy is one of the few investing exclusively in micro capitalisation stocks and concentrating on the lowest tiers of European stocks.

The Smaller European Companies uses the same investment philosophy and process but with a bias towards companies that have a substantial shareholder that is a family. This additional filter has shown to produce strong results over the long term but is yet widely ignored by most investors.

The New Europe strategy invests in small and medium sized companies across Eastern European according to a broader definition of the region, including countries such as Greece, Turkey and Russia. The strategy focuses particularly on little-known or poorly followed smaller and medium sizes stocks that have been ignored by mainstream investors, sometimes due to their location or their size.

The Swiss Small&Mid Cap strategy aims to achieve capital growth by investing in a diversified portfolio of Swiss-based companies, applying a strictly “Value” bias. The strategy focuses on companies that are undervalued or neglected by investors and analysts because they are less liquid that blue chips. The « Value » philosophy aims to limit the downside risk of selected securities, through a so-called « margin of safety » approach.