Tom Michels believes that the BLI investment strategy primarily offers opportunities for small caps to benefit from an economic recovery. Once the corona crisis is overcome, they could be ahead. Even if it hardly seems foreseeable at present, the Corona crisis will also come to an end one day. Investors are therefore well advised to take a strategic look at the future now, recommends Tom Michels, who works as a portfolio manager at Banque de Luxembourg Investments (BLI).
But Michels also gets specific, advising investors to buy shares in companies that have a relatively low market capitalization and are therefore called small caps. Here he sees a number of features that offer interesting potential for the economic recovery phase. One of the criteria that could make small caps so attractive in the future is, for example, the comparatively more conservative financing policy of such companies.
As a rule, the debt level here should be lower than that of larger companies. In this way, they could get back into business much more quickly after the recession and ramp up their activities. In addition, the relevant companies usually have flat hierarchies, which makes them more flexible and enables them to adapt more easily to changing market conditions. Last but not least, Michels points to the growth potential of smaller companies, which are often enough still in development – the growth phase is therefore still to come, which is extremely interesting for investors.
Often enough, such companies are built on a manageable number of products or services that require specific know-how. This specialisation is all the more interesting as the recovery period is likely to be correspondingly short. So there are weighty factors in favor of a renaissance of small caps, but investors should always analyze and select candidates carefully, emphasizes Michels.
Once the financial markets have calmed down again, it is therefore important to take a close look at long-term performance: Only those who also make strong selections in the individual stocks and select those companies that can also survive a recessionary phase well are likely to achieve the desired success in the end.
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