Successful, yet somewhat unnoticed
In the midst of the pandemic, Europe's Hidden Champions have proven their resilience and adaptability. These lesser-known Small- and Mid-Cap companies, deeply rooted in their home regions, have demonstrated their ability to swiftly adjust their cost base, ensuring their survival and growth in challenging times.
The Small-Cap market, however, presents unique challenges. Due to its less liquid nature, transactions incur high costs. This is especially true when large transactions meet low liquidity, leading to high volatility in Small-Cap stocks.
Navigating this market requires a keen understanding of the business model of a Small-Cap company and its prospects for success. Only those with this insight will have the discipline to withstand the market's fluctuations in the long run.
Fortunately, Europe is home to a multitude of such interesting Small- and Mid-Cap companies, their stocks traded on various stock exchanges. In Germany, for instance, company managers specializing in Small- and Mid-Cap investment funds include DWS, Allianz Global Investors, Deutsche Asset Management, Hauck & Aufhäuser, and Metzler Asset Management.
Investors can find numerous equity funds and ETFs in the Small & Mid Caps category in Germany. However, investing in second-tier stocks is more challenging, time-consuming, and expensive than buying stocks from the first tier of the stock exchange. The lack of publicly available information is one of the key hurdles.
Despite these challenges, Small-Cap stocks offer great opportunities for interested and ambitious retail investors, as well as for specialized investors. Investing in high-growth Small-Cap companies in profitable niches with little competition can be extremely lucrative.
The combination of a long-term orientation and competitive advantages in their respective niches enables high profitability for Mittelstand companies, making them structural winners of the crisis. Many of these companies have reliable expansion of their profit base, leading to a significant expansion of their market multiple.
Moreover, the German Mittelstand is renowned worldwide as leading niche providers in their respective industries. Their solid balance sheet ratios have enabled them to finance future growth, such as research and development or expansion investments, even in challenging times.
Patient and informed investors can benefit from temporary price fluctuations in Small-Cap stocks. Understanding a Small-Cap company's business model and prospects for success is crucial for withstanding market irrationalities and capitalizing on these fluctuations.
In conclusion, the Small-Cap market, while presenting challenges, offers exciting opportunities for those willing to delve deeper and understand the businesses behind the stocks. The Hidden Champions of Europe, with their solid foundations and growth potential, are worth considering for any serious investor's portfolio.
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