ZURICH: Unless there is a significant change in earnings performance of Swiss small and mid-cap names then investors will stick with large cap stocks.
That is the view of Swisscanto’s Peter Gachnang, who runs two equity funds including the €653 million Swisscanto (CH) EF Small&Mid Caps Switzerland fund.
Speaking to Citywire Global, Gachnang said he is running a modest overweight in small cap names in his all-cap strategy, the Swisscanto (CH) EF Equity Value Switzerland fund, but is reluctant to increase this.
‘In the small and mid-cap space, our benchmark has around 15% and we are currently holding 18% but we could go to 30-40% which we have done before. They offer good opportunities but this year looks difficult,’ he said.
‘The last time small cap names underperformed was about two years ago and this year could be the year where we see a repeat and perhaps a change for the worse.’
Gachnang said, while he is confident the more focused small and mid-cap fund will continue to find opportunities due to a wider investible universe, his value-driven, all-cap approach may become more dependent on large-cap, defensive names such as Novartis and Nestle.
‘What has to happen for investors to gain confidence in these small caps over the coming year is we need to see an improvement in earnings estimates, which right now is not the case’ Gachnang said.
‘You have to be in small and mid-caps in positive economic cycles and then they will really outperform. When the macro does well then so do small caps but the signs indicate this may not be the case.’
Gachnang said his small and mid-cap exposure is made up of Swiss companies looking to grow their presence in the emerging markets and the United States. He said difficulties in Europe, and a strong Swiss franc, had created challenges closer to home.
The Swisscanto (CH) EF Small&Mid Caps Switzerland fund has returned 12% over the past year. This compares to its benchmark, the Swiss Performance Index Small & Mid TR, which rose 11.28% over the same period.