After three consecutive months of free-fall, small caps rallied sharply in November. Investors clearly switched to “risk-on” mode:
- equities rose;
- fixed-income, the dollar and the VIX (an index representing volatility of the S&P 500) fell;
- small caps outperformed large caps; and
- growth stocks and cyclicals outperformed value and defensives.
Against this backdrop, Technology (long duration), Real Estate (sensitivity to interest rates) and Consumer Discretionaries (cyclical) outperformed the market as a whole, while Consumer Staples and Healthcare (defensives) and Energy (falling oil prices) underperformed.
Amplegest MidCaps outperformed its benchmark on the month (+11.60% vs. +8.69%), driven by a strong finish to third-quarter reporting season. Scout24, De’Longhi, Accor and Spie raised their full-year guidance. Nexi provided some reassurance after the poor numbers of Worldline, a competitor, and was bid up on new takeover rumours. Besi, which reported in late October, was driven up by excitement over its hybrid bonding technology. Soitec lowered its full-year guidance but managed to convince the market that the smartphone market has bottomed out.
In November we opened a position in The Italian Sea Group (TISG), a world leader in mega-yacht construction (i.e., >50 metres). TISG operates on a market that is structurally imbalanced, with demand estimated to outstrip global production capacities by 20%, whereas its ultra-high-net-worth individual (UHNWI) customer segment continues to expand. TISG therefore enjoys rare visibility, with an order backlog that is the equivalent of two years of sales. It enjoys very many sources of operating leverage, including a shift in its mix towards increasingly large boats, as well as the industrialisation and insourcing of its production processes. TISG is exiting an investment phase and should be able to generate heavy cash flow.