Talking Heads - European small caps offer income and growth

Damien, it's been [chuckles] an exciting week, month, year, a lot of events, volatility, though we always say that in the volatility is the opportunity.

The more recent dynamics for equity markets have been twofold.

Clearly, we're still assessing the implications of the conflict in the Middle East, trying to understand how high inflation is going to go and for how long.

Perhaps we're starting to see a bigger impact of those concerns about inflation on bond yields, which when they go up tends to have a negative impact on equities.

But for a medium-term outlook, European economic data hasn't been so bad.

In particular, I'd point to the manufacturing PMIs across Europe, which perhaps surprisingly improved in April after the start of the war, when we might have anticipated a decline.

If we look at retail sales across Europe, generally doing better than in March.

So the macro picture is reasonably positive, certainly under the circumstances.

If we then think about what's been happening in the equity markets, particularly European small cap stocks, good news is that European small caps have outperformed European large caps year to date.

Can you explain why that's the case?