A global phenomenum

The underperformance of small caps is not just a U.S. phenomenon. In Europe as well—particularly in Germany—small caps have significantly lagged behind large caps.

Over the past five years, the MDAX has gained just under 20%, while the DAX has doubled (+100%) over the same period—one of the widest performance gaps in recent history.

Valuations reflect this disconnect: small caps are trading well below their historical medians, with P/E ratios near the lower end of long-term ranges.

Historically, smaller companies have been seen as more innovative, less bureaucratic, and more responsive to changing market dynamics—often translating into stronger long-term earnings growth. While sentiment has turned cautious, fundamentals in many cases remain intact.

At ECP, we continue to look for quality businesses that are temporarily out of favour. Applied with a rigorous investment process—as we do at ECP—to avoid structurally weak or overly risky companies, selecting small caps can offer compelling long-term opportunities for patient investors.