Our Strategy

The European Micro Cap Space

Historically, the MSCI European Micro Cap index has outperformed the broader stock market indices. Yet allocation of capital and attention to Micro Cap stocks has decreased in recent years driven by the introduction of MIFID II, asset concentration among top tier asset managers and inflow into passive stocks indices.

The Micro Cap space is large with over 2.600 names included in the MSCI European Micro Cap index. The segment is under-researched, have limited liquidity and the market capitalizations can typically not accommodate the size of investment required by larger asset managers and institutional investors. Combined creating the most inefficient area of equity markets.

Our investment philosophy

  • Thematic
    Thematic investing identifies structural changes, works out the implications of these changes and finally defines operational investment themes. We typically have 8-10 investable themes, which help us to identify sectors and companies exposed to structural changes. Our thematic approach provides little overlap with index and other value strategies, offering diversification and uncorrelated returns. Stock picking is at the core of our investment process and based on a disciplined investment approach we aim to construct a high-conviction, thematic portfolio of companies with sustainable competitive advantages, visible growth potential and significant expected upside.
  • Alpha seeking
    We are fundamental investors and aim to pick companies benefiting from structural changes. We typically target high-growth companies, early in their lifecycle with yet to be proven business models. We aim to pick companies with strong fundamentals, low leverage, large total addressable markets, and a sustainable competitive advantage which provides the potential for strong strategic growth.
    Small does not equal low quality or credibility. Small companies provide room to grow and add value operationally.
    From our investment themes we construct a focused portfolio typically consisting of 25-30 carefully collected companies. We typically invest with a three-year horizon and only invest in stocks we expect to at least double in value during our investment horizon.
  • Active long-term perspective
    Our investment philosophy is based on active stock selection with a long-term perspective. Microcap companies are characterized by higher volatility, which can deter some investors. However, we believe a certain amount of volatility is beneficial as we alleviate this through active asset management and extended holding periods. Furthermore, volatility contributes with a low degree of correlation with other listed companies and provides the possibility of attractive entry multiples. The microcap segment is characterised by low liquidity, but this does not equal low quality. We believe the illiquidity of microcap stocks can work out to our advantage due to our long-term investment horizon. The low liquidity provides the possibility of attractive entry points, and our long-term horizon allows us to hold the asset until prices are fair.

Our Edge

The Micro Cap segment presents opportunities, but the inefficiencies can be challenging for investors to exploit.

We have over 25 years of experience with the European Micro Cap space and have successfully picked stocks using our thematic investment approach.

We purposely target a fund AUM of DKK 300 million as a larger fund is challenging to manage in the Micro Cap space due to liquidity, free float and influence on fund performance.

The lack of coverage makes it difficult for investors to assess the value of micro companies without conducting their own time consuming and in-depth analyses. We construct a high-conviction, concentrated portfolio of 25-30 companies and allocate appropriate resources to analyse and follow these opportunities.

Contrary to other larger funds, we have a long-term investment approach which allows us to exploit the liquidity discount applied to less liquid assets and hold until prices are fair.

Combined with our stock picking experience, long-term ownership and close engagement with management we seek to exploit the inefficiencies of the segment and generate superior investment returns.

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