Eat, Pray, Love: finding European small cap gems in unlikely places

By James Matthews, European Equities Fund Manager, Invesco

  • Italy unloved but beautiful – Many Italian small caps beat their global peers when it comes to innovation, engineering prowess ad growth.
  • A misunderstood asset class – Small caps are less well researched by the sell-side, but this increases the odds of them being mispriced.
  • Know the business – Investing in small caps requires you to know the business behind the name and how they add value.


In the biographical romantic drama ‘Eat, Pray, Love’, Julia Roberts stars as Elizabeth Gilbert, who finds herself searching for what she really wants in life. So, she embarks on a journey around the world that becomes a quest for self-discovery.

In her travels, she falls in love with Italy, the culture, the wine and, of course, its pizza! In a similar way, across our European small cap strategies, we are on a quest for discovery. And much like Elizabeth, we’re always open-minded to find what we’re searching for in unlikely places. For us, this has often led us to Italy – often perceived as a dull, low growth market.

Italy: unloved but beautiful

When many investors think of Italy, they think of low GDP growth, bureaucracy and near constant political turmoil. And yet, if you’re searching for excess returns, we can’t think of anywhere better than Italian small caps – many of whom beat their global peers when it comes to innovation, engineering prowess and growth. Companies like Bulgari, Campari and Ferrari were all Italian small caps once, countering the widespread misperception that Italian equities can’t deliver great returns to investors.

Today, we continue with our long-held overweight in Italian equities in our European and Pan-European small cap strategies. Not because we have a strong view on Italian macro, rather because we can find lots of stocks which fit neatly into our “DNA” stock selection framework. This means finding Durable companies, where we can find a Non-consensual investment thesis that gives rise to price Asymmetry.

Italian holdings in our European small cap strategies today include:

  • De’ Longhi: a manufacturer of espresso coffee machines and small domestic appliances;
  • GVS: a manufacturer of filter solutions for applications in the healthcare and mobility sectors;
  • Piovan: a company recycling plastic materials in an eco-friendly way, so that they can be used again and again.


Apart from being listed in Italy, what they have in common is that they’re all leaders in their respective fields, benefit from a highly-skilled workforce steeped in engineering history thanks to world-class universities like Bocconi in Milan, have large global growth opportunities ahead of them and have generated excellent returns on capital.

Finally, they are all family-owned businesses. With permanent “skin in the game” we often find these businesses have incredible focus, strong cultures, clearly defined purposes, excel at capital allocation and possess strong balance sheets to weather downturns. For our Italian small caps “la vita” truly is “bella”!

Whilst it might surprise some, the small cap FTSE Italia STAR index has delivered a 12.1% return p.a. in US$ over the last two decades, even better than the S&P’s 9.4% and MSCI Europe’s 7.0% over the same period. Across our small cap funds, Italy has been the richest source of alpha over the last decade, as low market expectations have been more than offset by the excellent fundamentals mentioned above – long may this continue!

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