Hidden Champions

Small and medium-sized companies are constantly reinventing themselves and are the driving force behind innovation, technology and business, especially in Germany, but also in Austria and Switzerland. The DJE - Mittelstand & Innovation makes use of this potential.

There are around 2,700 hidden world market leaders, so-called "hidden champions", worldwide. About half of them come from Germany - this is unique internationally. These mostly small and medium-sized companies are characterized, among other things, by their flexibility, short decision-making processes and enormous innovative power. More than 30 patents per 1,000 employees are attributable to the hidden champions, only just over five to large companies.

Their ownership structure also distinguishes them clearly from large companies, as the majority are family-owned or owner-managed. The average term of office of a head of a medium-sized company is around 20 years, in large companies it is 5.2 years. This has consequences in the long-term planning and orientation of the companies, the "thinking in generations", and also in dealing with employees, customers and business partners. Customer proximity and employee loyalty are much more pronounced in medium-sized companies.

Proximity to the customer and short decision-making processes help to ensure that entrepreneurial challenges are continually transformed into new, convincing products and services. At the same time, medium-sized companies are often more focused than their large counterparts, and they do more themselves, i.e. on average 50% of a product or service comes directly from the medium-sized company, compared with only 29% for large corporations.

Above all, however, they have an above-average growth potential. In the past five years alone, the MDAX, in which medium-sized German companies are listed, has risen by almost 45%. In the same period, the DAX 30 for blue chips achieved growth of around 15%.2 To tap this treasure trove, DJE - Mittelstand & Innovation invests in medium-sized companies from German-speaking countries whose market capitalization does not exceed five billion euros.

These companies must meet various criteria in order to be eligible for the fund: Their market share is among the top 3 on the world market or no. 1 in their home market, and they are hardly known. They have also been convincing for years with great innovative power, strong growth rates and high market shares in structurally growing (niche) markets. Their innovative strength is measured, among other things, by market share within the sector, patent rights and investment in research and development.

Fund manager René Kerkhoff is convinced that companies from the D-A-CH region, which are structurally strong in growth in the long term, can beat the overall market. He selects around 90 stocks for the fund portfolio and pays attention to, among other things, high growth, free cash flow, management quality, pricing power, market entry barriers and liquidity. Company visits also play an important role, as there is often less research material available for smaller companies. The purpose of the visits is to analyse the opportunities and risks in detail with the company management and to gain a deep insight into the company's business model.

 

DJE – Mittelstand & Innovation

 

1             Hermann Simon, "Hidden Champions – Aufbruch nach Globalia: Die Erfolgsstrategien unbekannter Weltmarktführer" (2012).
2             As of end of February 2020.

 

Note: All published details are for your information only and do not constitute investment advice or other recommendations. Long-term experience and awards do not guarantee investment success. Securities are subject to market-related price fluctuations, which may not be compensated for by the active management of the asset manager or investment advisor. This information cannot replace a consultation. All information has been provided with care and to the best of our knowledge according to the state of knowledge at the time of preparation. Despite all due care, the data may have changed in the meantime. Further information on opportunities and risks can be found on the website www.dje.de. The sales prospectus and further information are available free of charge in German from DJE Investment S.A. or at www.dje.de. The management company of the funds is DJE Investment S.A. The sales agent is DJE Kapital AG.