Several of the headwinds that weighed on earnings are now easing. Tariff effects are normalising, energy costs have stabilised and the US dollar looks less dominant, offering a relief valve for both European and Swiss companies. Early signs of cyclical improvement are appearing across parts of Europe, while Switzerland continues to benefit from its deep pool of globally competitive franchises whose underlying momentum has been temporarily masked by FX trends.
Valuations that stand out
Despite improving conditions, SMID valuations remain unusually attractive. European small caps trade around 13.4x earnings, well below both European large caps and US peers. In Switzerland, valuation dispersion is similarly pronounced, reflecting scepticism about the ability of ‘quality growth’ names to re-accelerate. We see this as an opportunity: the market appears to be overlooking the resilience, innovation and disciplined capital allocation that characterise many SMID businesses.
At a time when global equity exposure is heavily concentrated, SMIDs offer investors a way to access growth that is both under-appreciated and broadly diversified.
A landscape built for selectivity
What makes SMIDs compelling today is not simply that they are cheap; it is that the environment favours companies with the ability to control their own destiny. Across Europe and Switzerland, several themes stand out:
- Margin recovery as input pressures and tariff distortions fade.
- Tailwinds from currency stabilisation, particularly for Swiss exporters.
- Healthy balance sheets enabling strategic bolt-on acquisitions.
- Leadership transitions, bringing renewed focus and clearer capital allocation.
- Ongoing M&A interest from strategic buyers and private equity.
This is an environment that rewards bottom-up research and investment discipline. Many SMID companies have clear ‘self-help’ levers, pricing power and strategic flexibility − qualities that matter more than macro forecasts.
A timely source of diversification
Risks remain, from uneven global growth to the disruptive impact of AI. But SMIDs in Europe and Switzerland have shown they can adapt quickly, often more swiftly than larger peers. And with potential catalysts on the horizon − including improving European demand patterns and the Switzerland–US trade agreement − the opportunity set is broadening rather than narrowing.
For wealth investors looking to diversify beyond crowded large-cap themes, SMIDs offer access to resilient, well-managed companies at sensible valuations. After a decade defined by concentration at the top of the market, the next chapter may well belong to the businesses that have spent years quietly strengthening their foundations.
Read our Investment Outlook 2026
