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Boutique star: how to uncover the most promising microcaps

Boutique star: how to uncover the most promising microcaps

Microcap stocks are starting to fill much-needed gaps in finance and logistics value chains, according to Citywire AAA-rated Sébastien Lagarde.

Speaking to Citywire Selector, Lagarde, who co-runs the Mandarine Europe Microcap fund, said smaller players have overcome liquidity concerns which dogged the sector two years ago.

Lagarde, who joined from AXA IM in September of last year, said those companies that survived a ‘vicious cycle’ of companies lacking liquidity and investors not investing due to liquidity concerns have become sector leaders in niche areas.

Highlighting the development of financial technology – known as FinTech – Lagarde said companies such as Hypoport, a German internet-based financial products group, showed how helped push this theme forward.

‘Most innovation in this area is coming from very small companies but they are delivering strong knowledge growth and they can grow considerably,’ he said. ‘The area we have been looking at is FinTech, which is a new theme for the fund, which we have started moving into over the past two years.’

Finance is the fourth largest sector exposure in the fund at present, accounting for 12.5%, while Hypocort is the fourth biggest position at 0.78%. This is while industrials and technology account for the two biggest sector exposures.

Looking at logistics

Lagarde said developments which cover both of these two latter sectors have also drawn his interest, notably those which have married technology with industrial functions within the value chains of large companies.

‘There are a lot of companies which are making themselves attractive by filling gaps needed by large companies within logistics. There is lots of growth coming as a result of the boom we have seen with online shopping site Amazon, which meant logistics and infrastructure had to expand.

‘These are a mixture of industrial and technological companies, which can include robotics down to technology for running a fleet,’ he added.

He named Belgian group Zetes and Swiss firm Iterrol Holdings as being examples of innovators within product delivery and robotisation, while others, such as Trakm8, the largest position in the fund at 1.06%, has proved beneficial for cost-cutting purposes.

‘Trakm8 provides vehicle tracking technology and helps lower costs by optimising routes and improving efficiency. This is a smaller company but an example of how they can fill niches needed by bigger firms.’

The Mandarine Europe Microcap fund returned 45.2% in euro terms over the two years since launch to the end of December 2015. This compares with a rise of 26.4% by its Citywire-assigned benchmark, the MSCI Europe Micro Cap TR EUR, over the same period.

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