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Duncan Robertson

Market Outlook

Global SMID-Cap Outlook

Outlook
12 October 2025

By

Portfolio Manager, TT Asia and TT Global-Smid Cap Strategies

Latest Global SMID-Cap economic and market outlook. 


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Although there are multiple risks including tariffs, geopolitical tensions and fiscal pressure, on balance we remain positive for a number of reasons. Consumers, particularly across Europe and the US, have significantly delevered since the Global Financial Crisis and are benefiting from low oil prices. Moreover, saving rates are currently very high in the EU and UK. We believe they can fall as rates are cut and consumer confidence recovers. The weaker dollar also effectively loosens monetary conditions globally, particularly in Asia and other EMs, where central banks can run monetary policy more in line with domestic conditions, without the need to protect their currencies. Finally, earnings delivery is strong, with the Global Earnings Revision Ratio near a 4-year high.

Whilst valuations are not cheap on a global basis, neither are they extremely expensive, and as investors we need to consider upside risks as well as those to the downside. Indeed, many of the conditions necessary for further strong market performance are present, including a global economy that is already generating growth, the start of an easing cycle from central banks, and exciting structural growth opportunities such as AI. That said, we continue to skew the portfolio towards areas of the market where valuations are more attractive, notably Asia, Emerging Markets, and to a certain extent, Europe. Crucially, valuations in the SMID-Cap space appear much more attractive. MSCI ACWI SMID trades at 16.8x earnings – close to its 10-year median of 16.4x. Meanwhile, MSCI ACWI trades at 19.5x earnings – well above its 10-year median of 15.9x. Thus, SMID-Caps currently offer value and diversification. With large-cap indices increasingly concentrated in the Magnificent 7, we believe such diversification is more valuable than ever.

One exciting theme we have been adding to recently is Wellness. There is a general consumer trend towards healthier lifestyles, with people becoming more conscious of what they are eating and drinking. This is driving accelerating trends towards high-protein snacks and lower-sugar diets. The former is being boosted further by the increasing use of GLP-1 drugs, which can lead to muscle wastage that can be offset by the consumption of more protein. Ready-to-drink protein shakes are increasingly popular as meal substitutes and post-workout supplements. This category has enjoyed consistent double-digit growth for a number of years. We own Bellring and Glanbia, both of which have leading positions in this segment. Another holding is Vita Coco, the leading coconut water brand in the US. Coconut water offers high electrolytes, low fat, low sugar, and effective hydration. This is another category that has enjoyed consistent double-digit growth for many years. Vita Coco dominates the US market, with a 40-45% share.

Another theme that we are particularly excited about and have been adding to is Wealth Management. Many operators in the space are high-quality, asset-light businesses with sticky customer bases and a high proportion of recurring revenues. They are also beneficiaries of high savings rates in Europe and the UK, where much of our exposure is concentrated through the likes of Allfunds, Integrafin and Fineco. Wealth managers also benefit from rising markets, which we have seen recently, and which on balance we expect to continue.

Meanwhile, we remain excited about AI and are playing this in a number of ways. Our AI Data Centre hardware plays have been key winners for the fund, driven by a major spending cycle from the hyperscalers. Whilst we have taken some profit in these names after a strong run, we remain bullish and retain substantial exposure. Oracle recently announced an order from OpenAI worth $300bn over 5 years for data centre capacity. We see this as a watershed moment, and further confirmation of the ongoing AI arms race. It will likely lead to others increasing their spending to avoid being left behind. We have also been adding to companies that stand to benefit from implementing AI to enhance their own business models. One example is Japan-based Bengo4.com, which offers services to find lawyers, as well as a huge library of case precedents and associated documents that are used by lawyers themselves. It has recently launched an AI search engine for this database, which should make it significantly more valuable to customers and commands a substantial premium to standard services. Finally, we have been adding to high-quality companies that have sold off heavily on investor fears over AI competition. These positions are largely information services companies that could be categorised as bond-like ‘defensive growth’ equities. With the US continuing to cut rates and inflation gradually falling in much of the world, we expect bond markets to be firmer, supporting these stocks.

Over the quarter we added to Kaori Heat Treatment, which offers AI data centre liquid cooling solutions. It is also a supplier and partner to fuel cell provider, Bloom Energy. As mentioned, Oracle recently announced an order from Open AI worth $300bn over 5 years for data centre capacity. Being part of this specific supply chain, Kaori is a key beneficiary, and should also benefit more generally from rising AI data centre investment. Another purchase was Baltic Classifieds Group. It is the dominant platform in housing, real estate, jobs & services and general classified ads in Estonia and Lithuania. This gives it strong network effects, raising the barriers to entry for competitors. Monetisation is lower than in more mature markets, giving it a long runway for growth. Conversely, we sold Gerresheimer as its balance sheet is starting to become stretched to the point where the company is coming up against covenants on its bank debt, although it has managed to extend them. Its weaker balance sheet risks having to raise equity to fix it, which would be dilutive at these levels. Gerresheimer is also now subject to an investigation into its accounting practises by BaFin, the German financial regulator.

Important Information:

Nothing in this document constitutes or should be treated as investment advice or an offer to buy or sell any security or other investment. TT is authorised and regulated in the United Kingdom by the Financial Conduct Authority (FCA).

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