DNCA Actions Euro PME

Summary of Economic Conditions Influencing Investment Decisions

The MSCI EMU Small Cap Index closed September down 3.7%, in an environment marked by the return of inflationary pressures and a broad-based rise in sovereign bond yields. In the United States, the Federal Reserve raised its benchmark interest rate by 25 basis points, adopting a resolutely hawkish stance in response to a still-strong economy, persistent inflation, and oil prices remaining at high levels amid the conflict in the Middle East. In Europe, the ECB also continued its monetary tightening, while the rise in long-term rates was accompanied by a marked widening of the spread between France and Germany. Despite continued favorable earnings growth and ongoing investments in artificial intelligence, European equity markets were weighed down by higher discount rates and concerns about future growth.

Within the index, Utilities (-0.7%), Industrials (-1.1%), and Information Technology (-1.2%) showed the strongest resilience. Conversely, Health Care (-10.7%) and Energy (-7.5%) posted the sharpest declines, followed by Consumer Staples (-5.7%) and Real Estate (-4.8%). Materials (-2.7%), Communication Services (-2.6%), and Financials (-3.1%) also declined amid rising risk aversion and a more uncertain outlook for demand.

Decisions Made During the Period

During the month, we initiated a position in Soitec (semiconductor substrates) to benefit from the gradual normalization of inventories in the smartphone supply chain and the company's focus on high-value-added applications. We also invested in Asta Energy Solutions (electrical equipment), whose order book is supported by investments in power grids and data centers.

We continued to build our positions in Intercos (cosmetics), Technogym (fitness equipment), and Jumbo (retail), all of which continue to show solid growth momentum. We also increased our holdings in Vincorion (defense equipment), Técnicas Reunidas (energy engineering), JOST Werke (commercial vehicle equipment), Sword Group (IT services), and Thermador Groupe (construction materials distribution), taking advantage of more favorable entry points despite stable operational fundamentals.

Conversely, we reduced our position in Ekinops (telecom equipment), as the persistent weakness in operator investments is limiting short-term visibility. We also reduced our positions in Planisware (project management software) and Exail Technologies (defense and navigation technologies).

Finally, we closed out our positions in Argan (logistics real estate) as part of our reduction in exposure to real estate stocks, which are more sensitive to rising long-term interest rates given their dividend flow profile. The stock's recent rally, supported by the ongoing public tender offer from the Belgian company WDP at a price above the market price, provided us with a favorable exit opportunity.

Explanation of Performance

Monthly performance stands at: -0.38% compared to the MSCI EMU Small Cap Index: -3.69%, representing a relative performance of 330 pb.

The top contributors are: LU-VE (+19%), whose half-year report highlighted margins above expectations, a record order backlog, and growing exposure to data centers; Secunet Security (+36%), whose sharp acceleration in order intake reflects growing demand for sovereign cybersecurity solutions in Germany, with visibility bolstered by a potential major framework contract with the Bundeswehr; Cirsa (+33%), which is benefiting from the announcement of its merger with Lottomatica, valuing the group at a significant premium and offering substantial synergies; and TSK (+16%), whose half-year results confirmed a marked improvement in margins, cash flow generation, and the pipeline of opportunities;

The main underperformers are: Bilfinger (-33%), which sharply lowered its margin and cash flow targets due to delays in client investments and underutilization of its capacity; Renk (-20%), impacted by uncertainty regarding the timeline for major armored vehicle orders and reduced visibility on short-term earnings growth potential; Bilendi (-25%), weighed down by growth that is struggling to pick up and by a downward trend in profitability outlook for 2026; and Grenergy Renovables (-15%), impacted by delays in bringing projects online in Chile and by rising interest rates, which are weighing on renewable energy stocks.

Outlook and Strategies to Implement

Geopolitical tensions in the Middle East are fueling uncertainty regarding the sustainability of a low-interest-rate environment and contained inflation in Europe. The fund follows a disciplined investment approach focused on the of high-quality European small- and mid-cap companies with strong competitive positions, robust balance sheets, and sustainable growth drivers.