German financial metropolis Frankfurt (Photo: freepik, frimufilms)
German small caps could be on the verge of a renaissance. Why Loys Premium Germany could benefit from this upswing and why it could be worth getting involved now.
Small caps in the shadows – but not for long?
For a long time, German small caps had a difficult time. While the large DAX companies benefited from global trends and the attention of international investors, small and microcaps remained in favor of investors. There was hardly any sign of the much-vaunted small-cap bonus – the superiority of smaller companies in terms of long-term performance. That could now change.
Central banks around the world are signaling an easing of monetary policy – and the interest burden, which was particularly hard on small caps, is decreasing. In combination with falling inflation and the currently extremely low valuations, an exciting opportunity opens up for investors: the return of the German stock market dwarfs into the spotlight.
Loys Premium Germany – The specialist for hidden champions
This is exactly where it sets Loys Premium Germany to. Fund manager Markus Herrmann invests specifically in small, undervalued companies that are often market leaders in their niche. His portfolio includes around 30 values that he believes are driving the modernization of the German economy.
“Small and medium-sized companies in Germany are often more agile, more innovative and better at issues such as the environment and corporate governance than the large DAX companies,” explains Herrmann. These characteristics not only make them more resilient in a difficult market environment, but also offer enormous growth potential.
In addition, he does not consider the downside risks in his portfolio to be too high, at least in terms of valuation. He calculates that the companies in the Loys fund are currently valued with a price-earnings ratio for 2025 of just 9.4 percent.
The fund’s current top holdings include Media and Games Invest SE (Verve), Westwing, Lanxess and GFT Technologies. Verve in particular stands out: The company, which specializes in AI-controlled advertising technology, recently delighted its shareholders by doubling its share price within six months.
Takeover fantasy and growth potential
Small and microcaps are also interesting for another reason: many of these companies are on the shopping lists of private equity and financial investors.
An example from the Loys Premium Deutschland portfolio is Stemmer Imaging, a pioneer in image processing technology. The Bavarian company not only has a stable business model, but also serves high-growth markets such as automation and medical technology. Most recently, Stemmer was valued at a takeover premium of 52 percent – a clear indication of the high fair value.
Elections 2025: Timing is everything
Why could it be worthwhile to invest in German small caps right now? The reasons are obvious: In addition to the easing of monetary policy, there are new elections in Germany in February 2025. Herrmann sees this as a real opportunity for a new beginning in economic policy that could give companies room to breathe again.
In addition, there is enormous catch-up potential: While the fund shines with an impressive performance of 32 percent over the year, it is still significantly underwater over the three-year period with a loss of 25 percent. This shows how severely small caps have been punished in the past – and what upside potential they could now offer.
Conclusion: A clear tip for the brave
The Loys Premium Germany is more than a Germany fund. It is a plea for the strengths of German hidden champions who shine with their innovative strength and adaptability. For investors who believe in the comeback of the German stock market dwarfs, now could be the right time to get started.
One thing seems clear: If the economic policy framework improves and the markets continue to gain momentum, the little giants from the second and third rows could become the big winners of 2025.
Disclaimer:
Not investment advice. No call to buy or sell securities.
Michael Somers