The 'increasingly rich' opportunities in European small caps post-MiFID II

Under-researched area

Investors in European small-caps should be pleased. 2017 saw the asset class deliver its sixth consecutive calendar year of growth, returning just over 19% as measured by the MSCI European Small-Cap Total Return index.

Investors in the region were apparently unfazed by 2017's political commotion, with capital flowing into European equities faster than companies grew earnings. What has caused a brighter outlook for European small caps? The resulting stretch in valuations saw European small-caps reach 17x two-year-forward earnings at year-end, a level not seen during the past two decades. Over that time frame, the average ratio was 13x. This begs the question whether a commensurate rise in the prospects for European equities has accompanied the surge in prices, so as to justify this valuation. T...