With inflation forecasts adjusted up and growth forecasts down, small caps continue to underperform the market. Investors prefer greater liquidity. Interest rate hikes have not helped, with risk-free yields further reducing the appeal of exposure to growth stocks.
 
Long-term investors are benefitting from the situation, with private equity, industrial groups and shareholder consortiums launching takeover bids at record rates. The disparity between the stock valuations and intrinsic values of some companies is so great that buyers are sometimes offering premiums of more than 50%.

Beyond the valuation question, the barriers created by going public appear to increasingly dissuade companies, including small caps, from taking the plunge. This can be seen in the sharp decline of IPOs in recent years. In addition to the usual obligations of financial reporting, listed companies are faced with costly non-financial communication. Moreover, short-term pressure from the relentless requirement of quarterly publications is heightened by the ongoing risk of rumours and accusations, whether verified or not.
 
Examples of this are CTS EVENTIM and SES-IMAGOTAG, both of which suffered attacks in June. During a German television programme, the CEO of CTS EVENTIM was accused of serious fraud and conflict of interest. SES-IMAGOTAG was hit by an aggressive, error-filled report published by an investor who had shorted the stock. In the case of CTS EVENTIM, about which the accusations surpass the financial framework (and our area of expertise), we decided to sell our position after management refused to answer our questions. This lack of consideration for minority shareholders runs completely against our investment philosophy. In the case of SES-IMAGOTAG and accusations of accounting shenanigans, we were able to verify the company’s accounts. Management took the time to carefully argue its case, so we are holding our position. We might even take advantage of a decline in share price if the second part of the promised report is similar to the first one. Should this turn out to be the case, we hope that the competent authorities will take the necessary steps to punish these actions, which represent a severe threat to the proper functioning of financial markets and to the attraction of going public for entrepreneurs.
 
As a result of these conditions, Amplegest MidCaps significantly underperformed its benchmark index last month and lost its accumulated YTD advance.