The gap in performance between small and large caps continued to widen in May. This trend began with the collapse of SVB in March, and is now encouraged by uncertainties surrounding Chinese economic recovery and negotiations concerning the US debt ceiling. Investors therefore have turned their attention to the most liquid shares and those with the least need for bank financing. We believe that the relative underperformance of this asset class over the past few years, combined with a growth outlook superior to that of large caps, creates historically low entry points for investment.
Amplegest MidCaps outperformed its benchmark index in May (–1.48% vs. –3.24%) and is now ahead by 308 bps YTD (+6.66% vs. +3.58%). The second half of the fund’s companies published results in May, after the first half in April.
The omnipresence of artificial intelligence (AI) as investment theme has had an enormous influence on market performance, e.g. ASMi (+24%), which benefited from Nvidia’s exceptional results. However, the very same trend has had a negative impact on IT services, e.g. Sopra Steria (–8%). The market believes these companies could be threatened by AI automation. We believe just the opposite: that AI will create new business for the IT services sector.
In another vein, surveys of small and medium sized industrial groups (SMIs) in May confirmed a clearly defined gap between the manufacturing sector (contracting) and the service sector (expanding). This trend is good for CTS Eventim (+7%), which benefits from steady demand for concerts in Europe. Zalando (–27%), however, was hurt by consumer sentiment, which is struggling to improve. Although we are reducing our position, we still believe that the group will be one of the online retail winners, thanks to its healthy balance sheet and status as a European leader.
We remain focused on visibility and resilience, so we have added to our positions in GTT and Spie. At the same time we have taken profits by trimming ASMi and closing our position in Carl Zeiss. The group’s revised targets for 2023 seem overly ambitious to us, given the challenging market context (unfavourable regulatory climate in China, competition in the United States, very strong base effects).