For this edition we welcome Sébastien Lagarde, Co-Founder, CEO, CIO of Alphajet Fair Investors.
(Disclaimer: This interview is for informational and educational purposes only, and should not be seen as investment advice. Please do your own research before investing in any company mentioned).
Can you please tell readers about your background, and how you got involved in investing?
I studied at École Polytechnique and then at ENSAE — the École Nationale de la Statistique et de l’Administration Économique, France’s national school of statistics and economic administration — where I specialised in finance.
I grew up in the Lorraine region, and our local newspaper, L’Est Républicain, devoted half a page every single day to the Paris stock market prices. As a kid, that fascinated me, and I always knew I wanted to work in finance.
I spent most of my career at AXA Investment Managers and then at Mandarine Gestion, always on the equity management side.
In 2021, together with my two partners Thierry and Yassine, we founded Alphajet Fair Investors, and today we manage four equity funds.
Can you provide readers with an overview of the Alphajet Europe Microcap Fund?
Alphajet Europe Microcap is a UCITS fund which invests in the smallest listed companies in Europe.
We define a microcap as a company with a market capitalisation below €750 million at the time it enters the portfolio. It’s a pure equity fund, and our objective is to outperform the MSCI Europe ex-UK Microcap index.
Delivering on that requires stock selection, of course, but just as important — and something people tend to underestimate — is portfolio construction, which we use to manage the issues that are inherent to this investment universe: low liquidity, high idiosyncratic risk on every individual position, and the sheer size of the universe itself, which makes it very hard to have deep fundamental knowledge of every company in it.
Our edge at Alphajet is what we call a ‘quantamental’ approach. We build a quantitative score that combines factors on companies’ growth, valuation, price momentum, quality (financial solidity) and market sentiment.
It’s from that composite score — which we call Adalpha — that we form our financial view on each company in the universe.
We try not to carry a strong structural bias relative to our investment universe, but it’s worth noting that the universe itself skews toward growth: many of these companies are still start-up-like in nature, and because they attract relatively little investor attention, they are often mispriced by the market.
You have a universe of around 3000 public companies. How do you drill down to around 150 to put inside the fund?
We work through a funnel. The first step is a liquidity filter, which addresses the low-liquidity problem in this universe and narrows it down to a bit over 1,000 companies.
Next come our extra-financial filters: the fund falls under Article 8 of the SFDR regulation, so these are exclusion filters — for example, we don’t invest in companies that produce coal, tobacco or palm oil. That leaves us with an eligible investment universe of roughly 1,000 companies.
On that universe of around 1,000 names, we run our Adalpha scoring process every month, which produces what we call a buy list of roughly 250 to 300 companies — those with the best scores, or scores that are improving fastest. From that buy list, we build a highly diversified portfolio of at least 160 companies, without a marked geographic or sector bias.
Is there any particular European country or sector where you’re finding a lot of value at the moment?
I notice you have a sizable allocation to both Sweden and industrials.
That’s true, the fund is heavily weighted toward Sweden and toward industrials — but that largely reflects the shape of the investment universe itself rather than a deliberate top-down call.
Scandinavia represents almost 50% of our universe. Sweden in particular is a very dynamic market for smaller-company listings: there were close to 30 microcap IPOs in Sweden alone last year.
Beyond that structural point, we do lean into certain themes depending on the macro and geopolitical backdrop.
The advantage of microcaps is that, given the sheer breadth of the universe, we can almost always find companies exposed to a given theme — and because these companies are so small, they tend to be highly specialised.
That makes them genuine pure plays, which lets us express a theme in a very clean way.
What are some of the companies in the fund that you’re most excited about?
Before I give you two names, I should say that the whole point of my approach is diversification — that’s precisely how we manage the idiosyncratic risk that comes with investing in this universe.
So I try to keep position sizes reasonable, and I’m always a little reluctant to boil down a portfolio of more than 160 companies to just one or two names, since that isn’t really representative of what we offer our clients. But I’ll play along — though, to hedge my own reluctance a little, I’ll give you three examples rather than two.