Kraus whose funds have a decent long-term track record –  they have outperformed the MSCI Europe Small Cap and Micro Cap Indexes by 23.5 per cent and 27.3 per cent respectively since inception in 2017 – but suffered during the challenging economic conditions last year, says the asset class is set to return to favour.

“2022 was awful for European equities,” Kraus says. “We had a recession shock, inflation shock, rate shock, Ukraine shock, energy shock and maybe some other shocks as well. We are a very long-term quality, growth small and very small [cap manager], and the headwinds have never been so severe. It’s not a surprise that we looked like beginners last year.”

However, while Kraus concedes he cannot predict the future, he is optimistic that the headwinds that blew the funds badly off course last year, are set to ease.

“The environment has always been uncertain; nobody knows what is going to happen tomorrow, but we are in a different environment to the one we experienced over the past 12-18 months. I am not saying that things will change in the next couple of weeks, but we are nearing the end of the rate hiking cycle. We have seen peak inflation rates.”

Kraus says fears about a recession in Europe following Russia’s invasion of Ukraine failed to materialise, while energy prices are returning to some normality, all of which bodes well for European equities. 

Further, he says European small-cap and micro-cap stocks that are set to benefit from long-term structural tailwinds. For example, Elmos Semiconductor, a global market leader for semiconductors in the automotive industry, which reported 48 per cent sales growth in the last quarter and is well positioned to take advantage of the long-term trend towards electrification of systems and functions in vehicles.

Looking across Europe, Kraus favours Scandinavian companies, and the funds are overweight in the region, notably in Sweden.

Kraus says this is based on “a very strong competitive start-up scene revolving around tech and healthcare companies, concentrated in Stockholm with effective government backing”.

He gives the example of Medistim, the Norwegian global leader in innovative medical devices for measuring blood flow, which has grown its revenues by an average of 10 per cent a year.

“We look for companies with global leading positions in special niches and technology particularly semiconductor equipment and medical technology. Sweden and Denmark have been at the forefront of innovation in these future-oriented technologies.”

Kraus also says that the current markets present opportunities for established active asset managers, arguing that the research demands in the small and micro cap space function as a high barrier to entry to possible competitors.

“The lack of analyst research and broker coverage creates obstacles for small and micro cap managers who need to cultivate local connections/build up strong research teams, in addition to being willing to translate annual statements into English, to get the best out of the small/microcap markets,” Kraus says.

Weakness to sterling remains as new leader is sought and fresh limbo begins, she writes and notes that FTSE 100 stayed higher after gains on Wall Street.

‘’The clash of political camps and the row over whether the Prime Minister should stay or go is over. With the mood music changing so abruptly in Westminster and Boris Johnson finally deciding to leave 10 Downing Street, the pound lifted against the dollar, heading back up to USD1.20 before dipping back slightly. 

“With the rollcall of resignations now being updated by the minute, and his newly appointed Chancellor of the Exchequer even calling for him to go, his position looked untenable. The pound’s wavering path indicates that that traders believe it’s not quite the end to the political stalemate.

“Mr Johnson is set to stay in position until the Autumn, and the battle is already commencing over who will be the next leader. There is a cacophony of problems on the next Prime Minister’s plate, not least the cost-of-living crisis causing voters so much financial pain. Plus the trading relationship with the EU is still fraught with difficulty given the bill to amend the Northern Ireland protocol. Mooted tax cuts by the new chancellor may be popular with the electorate but risk making the Bank of England’s task of trying to bring down demand and inflation by raising rates even trickier.

“The FTSE 100 has stayed firmly in positive territory since the announcement, helped by the still weaker pound. Investors are welcoming the laser-sharp focus being trained on inflation, and there are ripples of relief in financial markets that the red hot prices look set to be brought down. Policymakers at the US Central Bank, the Fed have shown they are not going soft on inflation and are committed to interest rate hikes of between 0.5 and 0.75 per cent, according to the latest minutes of meeting. Runaway inflation is still viewed as the demon threatening economic stability around the world, and although sharp slowdowns and recessions could be a consequence, the attitude that it’s better to go in hard and fast now to prevent a further price spiral is largely being welcomed. The Bank of England is taking a similar stance with higher interest rates firmly on the table, despite the fragile state of the economy. The Bank’s chief economist Huw Pill, underlined the strategy in a speech, stressing that attention would be trained on making life more affordable through attempts to drive prices back down.

“Although oil prices have moved down the dial this week, the relief could be short lived, given the outlook of higher energy prices posted by Shell.  Cash has been pouring into the coffers of the oil giants and it means Shell has reversed up to USD4.5 billion in write downs of its oil and gas assets, a step it took after counting the cost of pulling out of Russia. Refining margins at Shell have almost tripled over the second quarter, due to the squeeze on global refining capacity and lower exports from Russia. Despite the recent dip, with crude trading at just above USD101 dollars a barrel, it expects to stay prices to stay elevated in the months to come because of the ongoing production constraints and sanctions on Russia. The big risk for Shell and BP going forward is that slowing economies could pull down the price of oil but for now there is an expectation that demand will keep outstripping supply.’’

The firm writes that by providing granular metrics alongside bespoke dashboards, big xyt will give CESL an edge in navigating Europe’s complex equities markets.
 
“We are delighted to partner with big xyt and benefit from access to its quality data analytics and visualisation tools,” says James Baugh, Head of European Market Structure at Cowen. “The enhanced visibility of the marketplace enables us to provide unique liquidity opportunities for our clients, which is key to supporting our rapidly expanding European equity execution business.”
 
CESL writes that it selected big xyt because of its independence and innovative ability to provide high-quality normalised data that leverages its in-depth domain experience in setting up, running, and maintaining data and analytics environments. Importantly, the visual elements of big xyt’s Liquidity Cockpit dashboards make it even simpler to access and communicate complex market structure changes.
 
Mark Montgomery, Head of Business Development at big xyt, says: “We’re pleased to add Cowen Execution Services to our growing list of international sell-side clients, which is continued evidence of the market’s need for innovative data analytics solutions to deliver tangible benefits for the industry. Banks, asset managers, exchanges and market participants across the globe consistently rely on big xyt as an independent reference for equity market structure, illustrating our ability to deliver a strong and transparent platform to our clients. Furthermore, James’ well recognised expertise in market structure enabled us to collaborate to provide Cowen access to unique insights for their clients.”