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Finding secular growth in European smaller companies

Richard Brown on the European Equities Team discusses where investors can find exposure to secular themes such as AI, healthcare and electric vehicles.

Richard Brown, CFA

Richard Brown, CFA

Client Portfolio Manager

Ollie Beckett

Ollie Beckett

Portfolio Manager

Rory Stokes, CFA

Rory Stokes, CFA

Portfolio Manager

11 Dec 2023
5 minute read

Key takeaways:

  • The vast breadth of the smaller companies universe means that exposure to long-duration trends such as Technology or Healthcare can be easy to find if you look in the right places.
  • From machinery used in the production of semiconductor chips to syringes used in healthcare, European companies have a key role to play in the proliferation of these trends.
  • Astute investors can identify companies that are likely to benefit from secular growth drivers and societal shifts where the market has not yet priced in such growth.

When we hear investors speak of innovation in technology and healthcare, new secular growth trends or societal shifts that are impacting financial markets, we all too often hear the same large cap stocks repeatedly described as the best way to access such themes. Yet due to the vast breadth of the small companies universe (some 3,000 stocks in Western Europe alone), we often find lesser-known stocks that stand to benefit as much as their larger, better-known peers.

AI advancing high performance computing

The release of ChatGPT in late 2022 brought to the fore the power of Artificial intelligence (AI) and its potential impact on a host of sectors and stocks, the true extent of which will become clear over time. Thus far the market has rewarded the more obvious candidates, such as large chip maker Nvidia, and largely ignored the other beneficiaries of AI, of which there are many.
Semiconductor chips have a key role to play in our increasingly tech-dominant world. Not only are they fundamental building blocks in AI, but they are the backbone to most modern-day technologies, including smart phones, autonomous vehicles and clean energy. Companies that service the semiconductor industry and related markets are less obvious beneficiaries of digital transformation than mega cap chip makers. German-based Suess Microtec, for example, produces fabrication and inspection machines which are key to manufacturing these chips. Solutions include backend lithography, wafer bonding and photomask processing, without which semiconductors could not be created.

The new computing paradigm will see a step change in processing and data centre demand; McKinsey has forecast 10% growth in US data centres each year to 2030.1 Temperature regulation is an important consideration for data centres to ensure that equipment works efficiently and does not overheat. More effective cooling systems allow data servers to be stacked more closely together, leading to more productive square footage which can ultimately have an impact on data centre profitability. This is especially significant in a warming climate, with both Google and Oracle having faced server outages amid a UK heatwave in 2022.

Companies that enable effective temperature regulation therefore have a significant role to play in the advancement of high performance computing. Munters is a global leader in energy efficient air treatment and climate solutions. The company has a long track record of developing cooling systems for different industries, including agriculture and data warehouses, and has pioneered a method that uses air cooling technology rather than the traditional, more water-intensive, technologies.

Accessing healthcare

Weight loss drugs have seen surging demand following innovation from Novo Nordisk (Wegovy) and Eli Lilly (Mounjaro), and this is set to rise further with some estimates predicting the market for such products could reach $100 billion by 2030.2 There were 500,000 US patients on the Novo Nordisk Wegovy drug in 2023 and approximately a further 50 million obese individuals in the US with medical coverage who may stand to benefit from the new drug. But with a joint market cap of over $900 billion, direct exposure to these big pharma companies is nigh impossible for small cap investors.

Fortunately, the scale of medicine and medical devices means that there are many avenues one can go down to achieve exposure to this theme. For example, Daetwyler, which makes Nespresso capsules, also produces the rubber seals for syringes that will likely be used to administer the drug (Eli Lilly’s Mounjaro, a medicine used to treat Type 2 diabetes, requires multiple injections a month).

Electric vehicles and clean energy

The shift to electric vehicles remains strong, with most developed economies banning the sale of fossil fuel cars from 2035. Although many investors first thoughts are Tesla and its enigmatic owner Elon Musk, many of the leading car manufacturers reside in Europe. The push for electric vehicles (EVs) in Europe, combined with the region’s recently announced crackdown on Chinese electric cars, should be a tailwind for local European companies associated with the production of EVs. EuroGroup Laminations, for example, produces rotors and stators, which are key components of induction motors used in EVs. In addition to EVs, these components are used in other industries, including logistics, household appliances and renewable energy.

Renewables is another industry where Europe are leaders. In addition to pure play small cap stocks like Nordex and Grenergy, Europe is home to many companies associated with renewables infrastructure. DEME is an expert in dredging, traditionally used to improve water ways and port access but which is increasingly being used for constructing large offshore windfarms. In building efficiency, Belgium-based Recticel produces insulation materials. The need to counter climate change means that renewable energy will likely remain a theme for the rest of our lifetimes, presenting a long-term growth opportunity for Europe.

By looking a little harder, investors can identify companies that are likely to benefit from new secular growth drivers and societal shifts, where the market has not yet priced in such growth. We believe this provides huge opportunity for investors in the European small cap space.

Secular growth trends are long-term investment themes that are ubiquitous and have strong growth potential. Examples include climate change, artificial intelligence, or changing demographics. Can also be referred to as a long duration trend.

A pure play company focuses exclusively on a particular product or service in order to obtain a large market share. In this context, a pure play renewables small cap company may offer solely wind energy or solar energy, for example.

1 McKinsey, Investing in the rising data center economy, January 2023.

2 Goldman Sachs, Why the anti-obesity drug market could grow to $100 billion by 2030, October 2023.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.


Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.


The information in this article does not qualify as an investment recommendation.


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