欧州小型株に吹き始めた追い風

Talking Heads – Damien Kohler

Daniel Morris: Hello and welcome to the BNP Paribas Asset Management Talking Heads podcast. Every week, Talking Heads will bring you in-depth insights and analysis on the topics that really matter to investors. In this episode, we’ll be discussing European small caps. I’m Daniel Morris, Chief Market Strategist, and I’m joined today by Damien Kohler, Head of European Small Caps. Welcome Damien, and thanks for joining me.

Damien Kohler: Thank you for inviting me. I’m very pleased to be with you today.

DM: If we think about the environment for European equities, or more specifically, small-cap stocks, it looks pretty good. We had better-than-expected growth figures in the first half. The European economy generally speaking proving more resilient than people had thought. We’ve already had a series of interest rate cuts from the ECB. And consumer demand – retail sales – similarly holding up in the face of a lot of challenges. As a portfolio manager, how are you finding investing in European small caps these days?

DK: Right now, the environment for small caps is attractive. You have to understand that after three years of performance versus large caps and significant outflows over the last three years, 2025 is proving to be a year where small caps are outperforming not just European large cap, but also many other global indices.

In euro terms, the main driver is the announcement of the German government to invest €500 billion over 20 years in infrastructure, construction, renewable energy, healthcare. This is important for small caps. Small caps have a high exposure to the industrial sector. So, this plan should benefit small caps, especially all the companies exposed to the German market. It’s very supportive for growth.

There’s also something that we do like in small caps that is more structural: in every country, you can find companies with a euro footprint, or purely a national one, or local one. That’s important to capture growth where growth is in each market. In each country, you can find cyclical companies for instance in the consumer industry, services sector. In capital goods, you can find more resilient business models such as utilities or telecoms, but also growth plays. That’s interesting because it helps you to diversify your portfolio and allocate capital to companies where growth is best compared to earnings visibility. To conclude, after several years of outflows, small caps are less crowded, and more importantly, valuations are reasonable unlike in 2021 when many growth companies were trading at high multiples. Today we are finding compelling opportunities in industrial, energy, financials. This is something that is attractive when you invest in small caps currently.

DM: If we think about investors looking for income and thinking about equities as an income source along with fixed income, what do you see when you look at the dividend yield on European small caps today?

DK: We are finding companies in small caps with a dividend yield above 7% with solid prospects, where the dividend will not be cut, where we should expect even more share buybacks. Just to give you some example, you’ve got more than 800 companies in the European small-cap universe, you got more than 10% that are yielding more than 7%. 7% is double of most government bonds. This is significant. We can even find companies where the dividend yield is more than 10% without risk on the dividend. Many small caps are well capitalised. They can return cash to shareholders through dividends or share buybacks. And this is what’s going on.

The opportunity is broad. It’s across almost all sectors. You got high-income companies in finance, energy, communications, materials, and across all countries. We can find opportunities that would fit. For instance, when we look at the dividend policy, it’s important companies are committed to pay at least a stable dividend. 

DM: One thing that’s driven investor enthusiasm towards US equities this year has been an anticipation of a pickup in mergers and acquisition activity. Do you see anything similar in Europe?

DK: The activity is incredible. Every month, I see companies being purchased by private equity players, or in some cases, industrial players. The bulk of the activity is due to private equity investors who are making bids on many companies, so, yes, activity in all sectors: again, technology, industry, financials, consumer healthcare. It’s a global trend where private equity investors are deploying cash. This is a sign that valuations are attractive and the growth outlook is supportive.

DM: If I could summarise some of the key points that you shared with us. You talked about how after three challenging years, you’re seeing an attractive environment, performance and inflows. We think about what the catalysts are behind that. You highlighted the €500 billion investment package towards infrastructure and defence that’s coming out of Germany, which you think will disproportionately benefit small caps, but you’re also seeing growth opportunities across all of Europe. And importantly with reasonable valuations.

If we think about investors looking for income, you see this as the most attractive market in 20 years with more than 10% of companies in your small-cap index yielding more than 7%. And finally, you characterise M&A activity as incredible. Well, Damien, thank you very much for joining me.

DK: Thank you very much as well.

DM: That’s it for this week’s episode of Talking Heads. If you would like more information about European small caps, please reach out to your BNP Paribas Asset Management contact or check out Viewpoint, our website for investment insights at Viewpoint dot BNP Paribas AM.com. Just before you go, I’d like to mention that the Talking Heads podcast is available on Spotify and on YouTube. For YouTube, visit youtube.com/BNP slash playlist and tap or click on Talking Heads. You’ve been listening to the BNP Paribas Asset Management Talking Heads podcast with me, Daniel Morris, and Damien Kohler, Head of European Small Caps. Please do join me next week. Until then, take care.