June Pulse Check: Passive momentum improves despite SMID underperformance in recent weeks
Pulse check on SMID sentiment: Divergence continues between SMID and large-cap fund flows, and SMID is once again underperforming large-caps
Small and mid-cap (SMID) stocks have have underperformed large-caps across Europe since the start of the year, with SMID up 6.4% vs 8.3% for large-caps. While we observed some SMID outperformance from the start of February, this has reversed in recent weeks, and in June, SMIDs underperformed large-caps again. While passive funds saw some inflows in June, active money continues to see outflows in SMID funds. Our conversations with investors continue to be dominated by the macro and geopolitical backdrop and key market themes (namely anything tech-related), but while investors are reluctant to make significant portfolio changes for now, given the ongoing market volatility, we do detect some appetite for stocks which may be over-sold but where there is the possibility of positive earnings momentum. In the coming weeks as we head into 1H results, we think the market will look particularly for more clarity on FY guidance and will focus on those stocks where the structural story remains intact, but valuations are compelling. Our strategists recently published Simply SMID (EU): The discount wears Prada on this theme. This note also includes the latest fund-flow, performance, valuation and positioning data across our SMID coverage.
Our Top 20 Pan-Euro conviction ideas
Our latest Top 20 Pan-Euro conviction Buy ideas. Out of the almost 400 SMID stocks we cover across UBS European Research, we selected stocks that we believe have an attractive investment case, compelling share price and potential valuation upside and ideally with a near- to mid-term catalyst. The Pan-Euro list consists of: Accelleron, Befesa, Brunello Cucinelli, Ceres Power, Convatec, Delivery Hero, GEA Group, Grenergy, Implenia, Inchcape, Metso, Nexans, NOBA Bank, Rockwool, Savills, Shawbrook, Standard Life, Theon Intl., Trustpilot and Zealand Pharma.
Weekly fund flow data: strong passive inflows in June; active outflows sustain
While our monthly fund-flow data provides a useful indication of the overall “direction of travel,” it is inherently lagged. We also look at weekly fund-flow data, which covers a narrower universe of funds, but offers a clearer view of near-term trends. Passive funds experienced positive momentum from February 2025 until the the conflict in the Middle East started this year. Since then, we have seen passive flowds decelerate sharply, although we note positive momentum in through June. In terms of active money, funds experienced steady positive inflows from Mar to Oct 2025. However in Nov-25, flows turned moderately negative and have been continuously seeing outflows till now. Interestingly in May we saw some active inflows, but this quickly reversed again through June. On a cumulative basis, active outflows are now below the the peak seen in February/March 2025, after which markets responded positively to news surrounding German stimulus plans. More details inside.
SMID is still trading at deeply discounted levels
Across Europe (inc. the UK), SMID stocks have underperformed large caps by -27% since the start of 2022. This underperformance has continued into 2026, with YTD underperformance of 1.8%. European SMID stocks are trading on a 12m fwd PE of 15.1x, just a 3% premium to large-caps. However, over the last 20 years, the Stoxx Mid 200 has traded at a 10% premium to the Stoxx Large 200, compared to its 3% premium today. For the Stoxx Small 200 a 15% LT premium compares to a -9% discount today.
Προσθήκη του MarketsReport.gr στην Google