As a student, Benedikt Eichenberger bought his first shares. Later, he made it his mission to identify small and discreet champions in the stock markets. With his investment model, which relies on active stock selection and risk management combined with AI, he is surprisingly successful. In a meeting with finews.com, he explains why small and medium-sized enterprises currently have a lot of potential.
Upon entering the spacious offices spread across three floors, located directly at Bellevue, it becomes clear that a serious player in the independent asset management scene has emerged here.
With about fifty employees and approximately 5 billion Swiss francs ($5.9 billion) in assets under management in wealth and asset management, these are the key performance indicators of Bellecapital, a financial services provider founded in 2009.
Meeting at Bellevue
Benedikt Eichenberger, who has been working as a fund manager for Bellecapital since 2018, has also contributed to this entrepreneurial success. His specialty is European and Swiss small and mid cap equities.
During his previous roles at Société Générale, Zuger Kantonalbank and Vontobel, he developed the fundamentals of his unique investment model and put it into practice.
Renewed Appetite for Small and Mid Caps
The friendly stock expert sits down in one of the meeting rooms with a wonderful view over Bellevue and the lake. After a certain dry spell, investors' appetite for small and mid caps is returning. In the past few years, investors had largely «sat on their hands,» scared off by the compounded crises of the pandemic, post-pandemic inflation, and the Ukraine war.
«In recent months, for the first time in a long while, we have seen significant inflows,» said Eichenberger. «Now, we are even back in talks with major institutional investors from the US and Asia.»
Valuation Levels Similar to 2009
Only when these investors begin to move will Eichenberger's focus stocks—small and medium-sized companies from Switzerland and Europe—really take off again. He emphasizes that this asset class is currently valued at levels similar to 2009.
«Many companies have performed very well operationally despite the crises. If companies successfully adapt to the new geopolitical realities, the upside potential is substantial,» he said.
Image Problem
But doesn’t Europe generally have an image problem, often seen as old and unappealing?
«Yes, and from a macroeconomic perspective, not entirely without reason,» the stock expert responded, «if you look at the economy as a whole.» Nevertheless, the stock markets of Switzerland, together with Denmark and Sweden, rank among the best in the world in the long run.
Specialty: Niche Market Leaders
«We only invest in companies that consistently deliver stable results and have scalable business models,» Eichenberger explained. «One key reason is that Switzerland has a high density of companies that are world market leaders in some niche.»
Such companies are «also less dependent on Europe as a whole, as the majority of their revenues come from Asia and America». The early identification of such niche market leaders is a specialty of Eichenberger.
«It is astonishing how many companies from our small country have managed to establish themselves successfully in some niche,» he said.
Lifecycle Matters
As an example, he mentions the VAT Group, listed on the stock exchange for almost ten years. In the semiconductor sector, the company from the Rhine Valley is the world's most important supplier of vacuum valves. With around 70 percent market share, VAT is «indispensable to many manufacturers» and has corresponding pricing power.
Eichenberger compares companies to living organisms: They also have a lifecycle, and the goal as an investor must be to enter during the growth phase. He managed to do this with the VAT Group, having invested just a few weeks after its IPO.
Don't Forget the Small Ones
A key element of his investment strategy is to cover, with his analyst colleagues at Bellecapital, those companies that fall under the radar of banks because they are too small, that is, firms with a market capitalization below 2 billion francs.
Since two years ago, Kevin Schatt, also from Vontobel, has joined to strengthen Eichenberger's team. Last year, he won the stock market game organized by «Finanz und Wirtschaft» using their investment strategy.
Active Selection with Humans and Machines
Eichenberger achieves active stock selection through a combination of human insight and machines. A self-developed AI-based model draws from the financial reports of companies and filters out the relevant information from the flood of news.
«We have been using AI for more than ten years to handle company reporting and systematically categorize it,» he shared.
Nevertheless, humans remain indispensable. The analysts are in constant contact with the companies and assess them based on seven soft criteria, such as product quality, ownership structure, corporate culture, management quality, or competitive environment.
A Different Allocation Than Major Indices
According to Eichenberger, this analysis currently leads him to favor small and mid caps in his allocation. As a result, his portfolios differ fundamentally from the well-known indices like the SMI and SPI.
In the SMI, Nestlé, Roche and Novartis together make up almost 50 percent of the weight.» In contrast, in his strategy, only Novartis is represented from the big three. Since risk management ensures that each of the roughly 30 portfolio companies has a similar weight, Novartis only accounts for about 3 percent of the total.
First Share Was Swissair
Besides active selection, systematic risk management is the second key feature of the strategy. Eichenberger recalls that the first share he bought as a high school student was a Swissair share.
«My father said it was a flying bank, so you couldn’t go wrong,» he recalled. «This turned out to be a disastrous investment.»
In retrospect, he is glad to have had this experience at a young age, adding that it was «a relatively small amount, so it was well spent as a learning experience».
Killer Criteria
Today, Eichenberger's risk management is a central element of his strategy, consisting of strict killer criteria that immediately trigger the sale of a position, particularly if the expected value of a stock shifts from positive to negative. However, there are also softer criteria. For example, if a CEO sells shares of their own company, this is «usually a warning signal,» but in individual cases, it may be justified. «Then we take a closer look, initiate a conversation.»
Currently, Eichenberger manages around 300 million francs with his Swiss equities strategy at Bellecapital.
«Anything above 1 billion would become problematic due to the liquidity of the corresponding stocks,» he said.
Outperformance
Bellecapital manages European small and mid caps as a strategy for qualified investors through the «Eiger Fund,» which focuses particularly on Scandinavian stocks in addition to Swiss ones.
How does the strategy perform in practice? According to Eichenberger, «the combination of active selection and strict risk management has consistently outperformed relevant indices». Bellecapital enjoys a stable and growing client base as well as high demand.
