“For four to five years, the smallest capitalizations have done less well than the large ones. Leaders were favored by their competitive advantages”recognizes Michel Bourgon, portfolio manager at DPAM.
The “insiders”, a source of inspiration for buying or selling for investors?
The impact of interest rates
But today, it seems that the tide has turned for these smaller American companies. Over the past year, with the easing of interest rates, more investors have found these values attractive.
gull It is often mid-sized companies that provide leaders with the means to build or cool data centers, for example.”
In addition, Donald Trump with his reforms concerning taxation and customs tariffs favors businesses in his country by making it easier to deduct interest and investment charges. These reforms coupled with a drop in interest rates have created a favorable climate for American businesses.
“Furthermore, we see that large technology companies are spending more and more to ensure their growth. These expenses create opportunities for mid-sized businesses through a trickle-down effect. Indeed, it is often they who provide leaders with the means to build or cool data centers, for example.releve Michel Bourgon.
Companies that specialize in electrification, cables or wind or solar electricity installations are also in high demand by the “magnificent 7”.
In order to benefit from these opportunities, investors can therefore turn to companies that produce, for example, semiconductors or that build or cool data centers.
Companies that specialize in electrification, cables or wind or solar electricity installations are also in high demand by the “magnificent 7”. “These companies turn less towards the State. They intend to ensure their energy autonomy. They are increasingly developing integrated models by calling on smaller companies to manufacture certain products. As a result, the order books of these smaller companies extend over almost four years and no longer over twelve months.notes this manager.
Investments: how to combat the bad influence of cognitive biases
Corrélation et diversification
However, the question arises of the correlation between companies in this market segment and large American companies. Investors are often criticized for being too focused on the “magnificent 7” through, in particular, the major stock market indices.
It should therefore be realized that by investing in another market segment, namely small et mid capsthey may find themselves dependent on the “magnificent 7” again.
“It should nevertheless be noted that currently, smaller companies have a discount of 30 % compared to large caps. It’s quite unusual.”points out Michel Bourgon. These companies have been neglected for a long time and their valuation is becoming interesting.
gull There remains one element to monitor for ‘small and mid caps’: the evolution of interest rates linked to the level of inflation.”
Beyond companies that can offer their services to major technological leaders, this asset class is also available in other sectors. There we find in particular financial companies which could benefit from the advantages of artificial intelligence (AI) to reduce their costs. In the health sector, biotechs are also initiating a faster renewal cycle for their products thanks to AI.
Shakes on the markets: how to hedge against declines with convertible bonds
“There remains one element to watch for small et mid caps : the evolution of interest rates linked to the level of inflation. If the current conflict were to prolong, there is a risk of an increase in inflation and an increase in interest rates, which is unfavorable in general for the entire American economy and even more specifically for small and mid-caps.”warns Michel Bourgon.
