Why Bother with the 1%?

We believe today's European small-cap market offers an attractive playing field for specialised active investors. Not because our strategy depends on small caps coming back into favour, but because thousands of good businesses receive limited attention from institutional investors.

Our opportunity is to find the right businesses, become a meaningful shareholder and partner with ambitious management teams to help them become larger, stronger and more valuable companies.

An overlooked part of the market

Capital and investor attention have increasingly concentrated at the top of the equity market. The growth of passive investing has reinforced this trend: market-cap-weighted indices naturally allocate more capital to larger companies. Scale and liquidity give large institutional investors another reason to focus on the same part of the market. More recently, enthusiasm around AI has concentrated attention even further on a relatively small number of global market leaders.

At the other end of the market lies an often-overlooked universe. MSCI's large-, mid- and small-cap indices together comprise approximately 1,230 companies and cover 99% of the free-float adjusted market capitalisation of European developed markets¹. We estimate that the remaining 1% consists of more than 3,000 listed companies. For many large investors, these companies are simply too small to build a position that matters. Why bother with the 1%?

For investors willing to look beyond the crowded end of the market, this creates a rich hunting ground for good businesses.

Less attention creates room for active ownership

Being overlooked does not mean being a bad business. Among these thousands of companies are businesses with strong market positions, healthy balance sheets and capable, ambitious management teams — including genuine hidden gems. Finding the right ones requires specialist knowledge, fundamental research, selectivity and experience.

But limited attention has consequences. Institutional ownership tends to be lower, shareholder bases more fragmented and retail ownership more significant. Analyst coverage is often limited, further reducing the attention these companies receive. Perhaps more importantly, there may be fewer committed shareholders thinking and acting like long-term owners.

As a result, strategy, capital allocation, operational performance and corporate governance may receive less challenge and attention. A good business can therefore have considerable unrealised potential without being a poorly managed business. A specialist active investor, willing and capable of engaging, can step into this gap, providing constructive challenge and helping management unlock that unrealised potential.

Private market investors and strategic buyers also recognise this opportunity. More than 1,000 European listed companies have been taken private over the past decade^2,3. Buyers see good businesses with unrealised potential, acquire them and seek to realise that potential away from the public markets.

So why bother with the 1%? Because where others look less, there is more opportunity for those willing to do the work.