We see catalysts from a top-down and a bottom-up perspective. From a top-down perspective, we consider three interest rate cuts in Europe to be a reasonable assumption for 2024. When the Fed joins the party, it will provide an added boost to markets, but that is likely to be a more drawn-out affair. In the UK shop price inflation figures came in lower than expected for May at 0.6% down from 0.8% in April. If the Bank of England does not cut in fairly quick order after the ECB, we would be surprised.
From a bottom-up perspective, most of the management teams we spoke to have expressed the view that growth this year will be H2-weighted. Thus, we are confident about the continued resurgence in European mid-cap growth. The valuation of the fund is compelling as it trades on a two-year average P/E to EPS growth (PEG) of 1.0x, comprised of market estimates of two-year average EPS growth of 22%. However, our companies’ latest Q1 EPS growth figures showed an average of 36% making the PEG on the portfolio significantly lower than 1.0x. We expect upwards revisions to market estimates.
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