That’s what I take away each time I attend Milan's annual small- and mid-cap STAR Conference. Here, versatile businesses and visionary founders share innovative insights across sectors ranging from niche industrial companies to luxury goods, pharmaceuticals, digital banking, and beyond.

Dance of the banks

This year, the most talked-about topics were tariffs, defence exposure, the US, and the German budget. Among investors, I noticed rising interest in companies with any form of defence exposure – despite 'defence' being one of the most avoided words of the past decade.

There was also significant focus on European domestic businesses and beneficiaries of German public spending. But the most discussed issue was Italy’s ongoing banking consolidation. Understanding la danza delle banche ('the dance of the banks') is no easy task, with its constantly shifting dynamics and unpredictable outcomes. With so much in flux, I met with several financial firms to gain a clearer picture of what’s happening on the ground.

My meetings with Banca Generali (currently under offer from Mediobanca) and Azimut provided valuable insight into the sector’s growing demand. This includes inflows into discretionary management services, the decline of traditional banks, and Italy’s evolving demographics.

The latter is a structural growth trend. The ‘babies’ of the post-World War II generational boom (1946–1964) have become today’s middle class, wealthy heirs, and families who once drove the Italian economy. Now, we’re witnessing a wealth transfer from older to younger generations, heightening the need for succession planning – and requiring extensive wealth management expertise and services.

Additionally, an aging population and increasing pressure on the pension system are weighing on newer generations’ ability to maintain adequate retirement income. This, too, calls for modern wealth management solutions tailored to new savers. On top of this, banking is undergoing a digital transformation – but that’s a topic for another note.

Meeting highlights

During my time in Milan, I met with Reply – the founder-run IT consulting, system integration, and digital services specialist – following its excellent full-year 2024 results. Its strategic focus on implementing and leveraging generative AI has enabled it to deliver more efficient client solutions, while significantly improving margins.

The company’s communication strategy has also evolved, with investor calls now accompanying the publication of its results. This is a positive development, enhancing visibility and fostering stronger investor relationships.

Not so glamourous

As I headed for my return flight from Malpensa Airport, an Ermenegildo Zegna advertisement reminded me of the challenges facing luxury-goods makers in today’s climate, especially for brands targeting aspirational Chinese and US consumers. The sector remains volatile, as brands chase the next blockbuster trend to justify the exceptionally steep price hikes of recent years.

One exception is my longtime favourite and portfolio staple, Brunello Cucinelli. Not only has has the ultra-high-end fashion brand weathered the last year’s storms, but it also exceeded initial guidance in 2024 whilst posting excellent first-quarter results for 2025. The company’s strategy remains focused on the top 1% of the global population – a formula that continues to set it apart in the luxury space.

Final thoughts…

Some of the above stocks have helped Italian small caps become one of the world’s best-performing asset classes over the past five years.

Yet, despite this impressive run, the asset class currently trades at just 11x price-to-earnings. For investors, now could be opportune time to explore opportunities in the Italian small-cap sector – batti il ferro finché è caldo, as the saying goes.  

Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.

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