By Birgitte Olsen, investment manager for companies at Bellevue Asset Management
After several challenging years, European small caps are regaining momentum. The recovery, which began to take shape in 2025, strengthened throughout 2026, marking a potential turning point for an asset class that has long ranked among the most profitable segments of the European equity market.
The recent period of underperformance relative to large caps has led many investors to underestimate this segment. Yet the underlying fundamentals paint a very different picture. Today, many European small caps are at the forefront of some of the most powerful structural trends shaping the global economy. Electrification, AI infrastructure, energy efficiency, industrial automation and reshoring are creating compelling growth opportunities across a broad range of niche sectors. These companies are often leaders in highly specialised markets, benefiting from strong competitive positions, pricing power and long-term growth opportunities.
For active investors, this creates a particularly attractive opportunity set. The European small-cap universe comprises more than 2,000 listed companies, spanning a wide range of sectors and structural growth themes. However, identifying the most attractive opportunities requires niche expertise. Success in this market depends on the ability to uncover high-quality, under-researched companies that are often overlooked before they become widely recognised.
The strength of these underlying trends is increasingly reflected in corporate performance. Earnings have remained remarkably resilient, and the latest reporting season saw a growing number of companies beat expectations. In addition, earnings growth forecasts continue to improve, reflecting the strength of secular demand drivers that are increasingly decoupling from broader economic growth trends.
Despite this favourable backdrop, valuations remain attractive. European small caps continue to trade below their historical average multiples and at a significant discount to large caps. Such a discount is historically rare. Small caps have typically commanded a valuation premium, reflecting their stronger long-term growth potential.
As European small caps continue to recover, investors are facing a rare convergence of improving fundamentals, attractive valuations and powerful long-term growth drivers. Backed by a proven investment process, deep expertise and a strong track record in identifying Europe’s “hidden champions”, the Bellevue Entrepreneur Europe Small Fund is well positioned to benefit from the continued rebound of this promising asset class.
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