Skip to main content

      More Results
        More Results

        From Sectors and Smart Beta to Fixed Income, SPDR Exchange Traded Funds (ETFs) give you wide access to diverse investment opportunities. Find out more.

        Okay

        Weekly ETF Brief

        European Small-cap Equities: Are Doves Preparing for Takeoff?

        The European Central Bank (ECB) is preparing to cut interest rates this month while the Swiss National Bank and Riksbank have already begun loosening monetary conditions. Meanwhile, economic growth in Europe was better than feared in Q1, alleviating recession worries.

        3 min read
        Krzysztof Janiga, CFA
        Senior Equity ETF Strategist

        This European version of a soft landing may allow small caps to fare well over the coming months given their sensitivity to rates and economic conditions.

        Achieving a Delicate Balance

        The ECB’s long-awaited rate cut may be baked into current expectations. But given the restrictiveness of the Federal Reserve (Fed), an element of uncertainty remains — hence the expected action from the ECB on 6 June should provide a tailwind to rate-sensitive small-cap stocks. Within Europe, markets expect that the Bank of England is likely to keep rates at the current level at least until August. 

        The beginning of rate cuts, however, is less important than the trajectory that follows. As the year progresses, central banks in Europe may have a cleaner path to continue easing as growth remains lower than in the US. But that growth, while still soft, has been improving in Q1 as Germany avoided recession, GDP growth in France came in at +0.2%, and Spain at +0.7%1. In the UK, a recessionary period ended with GDP jumping by 0.6% quarter on quarter — the strongest growth since the end of lockdown2. All of these growth numbers exceeded expectations. While these are not stellar growth rates, European economies may be achieving a delicate balance between growth and disinflation, a potentially favourable backdrop for small-cap equities. 

        Valuations Remain Appealing

        Despite relatively strong performance in May and rate cuts on the horizon, price-to-earnings (P/E) multiples for European small caps remain attractive on an absolute basis and relative to the MSCI Europe Index. The MSCI Europe Small Cap Index and the MSCI Europe Small Cap Value Weighted Index trade at a discount of 17% and 14%, respectively, compared to the long-term average. Moreover, the MSCI Europe Small Cap Index trades at a 7% lower P/E compared to MSCI Europe, while historically, small caps traded at a 3% premium on average.

        Cyclical Sector Composition

        The MSCI Europe Small Cap Index and the MSCI Europe Small Cap Value Weighted Index both overweight Industrials and Real Estate. Industrials makes up 25% of the index and the sector is supported by multiple structural tailwinds including defence spending, investment in infrastructure including green transition or energy security, as well as broad reshoring efforts. Real Estate is another significant overweight; while the sector has been battered, it may now be well supported by disinflation, the economic slowdown supporting lower rates, the structural housing shortage in Europe, and undemanding valuations. The MSCI Europe Small Cap Value Weighted Index also overweighs Financials, which accounts for 22% and benefits from a high interest rate environment as consumers remain relatively resilient. Another overweight is Materials, an interesting sector given the recent surge in commodity prices. 

        On the other side, the index underweights Consumer Staples and Health Care — both defensive sectors. Therefore small caps are a higher risk-reward exposure not only because of the size but also due to the sector composition.

        Country Composition

        From a regional standpoint, European small caps are overweight the United Kingdom (30% of both the MSCI Europe Small Cap and the MSCI Europe Small Cap Value Weighted Indices) as well as Nordic countries. The Euro area accounts for only 40% of the MSCI Europe Small Cap Index, which is a significant underweight compared to both the MSCI Europe Index (52%) and the MSCI Europe Small Cap Value Weighted Index (47%). Perhaps the most important distinction between small and large caps lies in the domestic bias of smaller companies which derive approximately 60% of their revenue within Europe, while the corresponding number for the MSCI Europe is 42%. This makes small caps potentially better positioned to capture the benefits of reshoring efforts.

        How To Access the Theme

        More on Weekly ETF Brief

        MARKETING COMMUNICATION

                                           

        FOR PROFESSIONAL INVESTORS USE ONLY.

         

        SSGA SPDR ETFS MAY NOT BE AVAILABLE OR SUITABLE FOR ALL. SPDR ETFs may be offered and sold only in those jurisdictions where authorised, in compliance with applicable regulations.

         

        Investing involves risk including the risk of loss of principal.

         

        ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns.

         

        The S&P 500® Index is a product of S&P Dow Jones Indices LLC or its affiliates (“S&P DJI”) and have been licensed for use by State Street Global Advisors.  S&P®, SPDR®, S&P 500®,US 500 and the 500 are trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and has been licensed for use by S&P Dow Jones Indices; and these trademarks have been licensed for use by S&P DJI and sublicensed for certain purposes by State Street Global Advisors. The fund is not sponsored, endorsed, sold or promoted by S&P DJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of these indices.

         

        The information provided does not constitute investment advice as such term is defined under the Markets in Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any investment. It does not take into account any investor's or potential investor’s particular investment objectives, strategies, tax status, risk appetite or investment horizon. If you require investment advice you should consult your tax and financial or other professional advisor.

         

        The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the Markets in Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.

         

        All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed.  There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

         

        This content has been issued by State Street Global Advisors Europe Limited is regulated by the Central Bank of Ireland. Registered office address 78 Sir John Rogerson’s Quay, Dublin 2. Registered Number: 49934. T: +353 (0)1 776 3000. F: +353 (0)1 776 3300.

         

        FOR EUROPEAN SPDR ETFs and MANAGED FUNDS:

         

        Please refer to the Fund’s latest Key Information Document (KID) and Prospectus before making any final investment decision. The latest English version of the prospectus and the KID can be found at www.ssga.com/ch/en_gb/institutional/ic/fund-finder. A summary of investor rights can be found here:

         

        Managed Funds: https://www.ssga.com/library-content/products/fund-docs/summary-of-investor-rights/ssga-investors-rights-summary-non-etf-ireland.pdf

         

        SPDR ETFs: https://www.ssga.com/library-content/products/fund-docs/summary-of-investor-rights/ssga-spdr-investors-rights-summary.pdf

         

        Note that the Management Company may decide to terminate the arrangements made for marketing and proceed with de-notification in compliance with Article 93a of Directive 2009/65/EC.

         

        SPDR ETFs is the exchange traded funds ("ETF") platform of State Street Global Advisors and is comprised of funds that have been authorised by Central Bank of Ireland as open-ended UCITS investment companies.

         

        SSGA SPDR ETFs Europe I & SPDR ETFs Europe II plc issue SPDR ETFs, and is an open-ended investment company with variable capital having segregated liability between its sub-funds. The Company is organized as an Undertaking for Collective Investments in Transferable Securities (UCITS) under the laws of Ireland and authorized as a UCITS by the Central Bank of Ireland.

         

        FOR STRATEGIES:

         

        This document provides summary information regarding the Strategy. This document should be read in conjunction with the Strategy's Disclosure Document, which is available from SSGA. The Strategy Disclosure Document contains important information about the Strategy, including a description of a number of risks.

         

        The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

        4978691.4.1.EMEA.INST

        Exp: 30.06.2025 

        © [[]] %%State Street Corporation%%. All rights reserved.