Swiss online broker Swissquote has been the standout contributor for the QUAERO Capital smaller European companies strategy, according to Quaero Capital fund managers Philip Best and Marc St John Webb.
The managers at the Geneva-based asset management boutique have revealed that Swissquote has been a top driver in the performance of the fund, formerly known as Argos Funds Family Enterprise fund. Swissquote rose by 25% after it reported net profits of 61% for the first half of the year.
‘This was thanks to a rise in equity transactions in the domestic Swiss market, dynamic growth of its foreign exchange trading activities in Asia, a rise in overall assets under management and continued expansion in its fintech services activities,’ the duo explained.
Despite the strong growth of the firm, Swissquote’s profits are still being hit by negative interest rates, they said, which means returns could improve significantly in a normalised interest rate environment.
‘The shares still offer good value and the company is likely at some point to become a target for a large bank willing to fund an upgrade in its digital technology capability.’
Another top performer in the portfolio is German solar invertion provider SMA Solar, which has bounced back after suffering a recent share price dip. Shares dropped on fears of a slowdown in the Chinese solar market, but rose by 21% in August after the company reported its order book was up 40% in H1.
‘The solar market recovery is already gathering pace and SMA Solar, with its high-spec inverters, is well positioned to increase its share of value added installations.
‘This was a contrarian purchase last year as the net cash on SMA Solar’s balance sheet covered half the stock market capitalisation. But continual cash generation has added to the substantial cash balance, which still represents one third of the market cap.’
The biggest detractors in the fund included French fastener supplier LISI, Portuguese holding company Sonae Capital and Swedish cosmetic company Oriflame.
Swiss media content protection firm Kudelski was among the weakest performers, with disappointing H1 results, the duo said. The share price fell by 19% over the period.
‘Andre Kudelski’s strategy of using a declining cash cow (access to pay TV services) to finance expansion into another more promising avenue (digital security know-how), where the company has competitive advantage, is sound. But his plans need to be better communicated to investors if they are being asked to wait up to three years for substantial profitability.’
Even so, there is value in the wake of the recent sell off, the manager said. Kudelski is starting to turn the 5,300 patents into a cashflow generator.
Over three years to the end of September 2017, the Quaero Capital Funds (Lux) - Smaller European Companies fund returned 62.0% in CHF terms. The benchmark, MSCI EMU Small Cap TR EUR, returned 51.98% over the same period.