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Global Small Companies Fund

Specialists in a vast and growing investable universe

June 2024 - Monthly REPORT

June Report

SUMMARY

  • Smaller companies underperformed the broader share market across most sectors as political risk increased, especially in Europe and Emerging Markets.
  • The Fund returned -2.7% in June, while the benchmark delivered -1.5%, as performance was impacted by the stronger Australian dollar.

PORTFOLIO

Top Holdings (alphabetically)

Envestnet Inc
United States
Information Technology
Envestnet, Inc. engages in the provision of intelligent systems for wealth management and financial wellness. It operates through Envestnet Wealth Solutions and Envestnet Data and Analytics segments. The Envestnet Wealth Solutions segment provides unified wealth management software and services to empower financial advisors and institutions. The Envestnet Data and Analytics segment is involved in data aggregation and a data analytics platform powering dynamic, cloud-based innovation for digital financial services. The company was founded by Judson Taft Bergman, James Winfield Lumberg, William C. Crager, and Brandon Rockwell Thomas in 1999 and is headquartered in Berwyn, PA.
GILDAN ACTIVEWEAR INC
Canada
Consumer Discretionary
Gildan Activewear, Inc. engages in the manufacture and sale of print wear and branded apparel. Its products include activewear, underwear, socks, hosiery, and legwear. The firm operates under the brand names Gildan, Alstyle, American Apparel, Comfort Colors, GOLD TOE, Anvil, Secret, Silks, and Peds. The company was founded by Glenn J. Chamandy and H. Gregory Chamandy on May 8, 1984 and is headquartered in Montreal, Canada.
Glanbia PLC
Ireland
Consumer Staples
Glanbia Plc engages in the manufacture and distribution of dairy and nutritional ingredients. It operates through the following segments: Glanbia Performance Nutrition, Glanbia Nutritionals, and All Other Segments. The Glanbia Performance Nutrition segment manufactures and sells performance nutrition products. The Glanbia Nutritionals segment produces and sells cheese, dairy and non-dairy nutritional ingredients. The All Other segment includes both the results of other equity accounted investees who manufacture and sell cheese and dairy ingredients and unallocated corporate costs. The company was founded in 1997 and is headquartered in Kilkenny, Ireland.
Noritsu Koki Co Ltd
Japan
Industrials
Noritsu Koki Co., Ltd. engages in the manufacture and sale of environment solution, kitchen, and photo processing equipment. It operates through the following segments: Monodzukuri, Health Care, Drug Discovery, Senior Life, Agricultural Food, and Others. The Monodzukuri segment handles research, development, production, and sale of pens and cosmetic parts. The Health Care segment provides radiology services, survey data, and genetic testing. The Drug Discovery segment provides research, development and sale of biopharmaceuticals. The Senior Life segment handles publication and mail order services for seniors. The Agricultural Food segment produces and sells fresh vegetables. The Others segment handles investigation and investment of new growth areas. It also offers mail order for dental materials and development and sale of drug treatment database for insurance companies. The company was founded by Kanichi Nishimoto in June 1951 and is headquartered in Tokyo, Japan.
Sapiens International Corp NV
United States
Information Technology
Sapiens International Corp. NV provides software solutions for the insurance industry. It offers core, end-to-end solutions to the global general insurance, property and casualty, life, pension and annuities, reinsurance and retirement markets, as well as business decision management software. The company was founded by Joseph Bolless and Ron Zuckerman in 1982 and is headquartered in Holon, Israel.

Capitalisation Breakdown

Region Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 30 Jun 2024 1
1 MTH 1 YEAR 2 YEARS P.A. 3 YEARS P.A. 5 YEARS P.A. SINCE INCEPTION P.A.
Global Small Companies Fund -2.7% 1.5% 6.7% -2.5% 4.4% 6.1%
MSCI All Country World SMID Cap Index unhedged in AUD -1.5% 10.3% 13.2% 3.6% 8.1% 8.2%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

Market Commentary

Global equities continued to grind higher in June, led by big tech, upon hopes that easing inflationary pressures will bring lower interest rates later this year.

Political uncertainty following the French election and the US presidential debate led to investor nervousness across European and North American markets, impacting smaller companies. The market’s negative reaction to Mexico’s presidential election spread across Emerging Markets. However, this appears excessive and likely to be temporary as the overall environment remains attractive for smaller company investors.

Markets were weaker across all sectors of the smaller company investment universe, except for information technology. It benefitted from investor interest in larger cap tech stocks, especially semiconductor groups exposed to growing AI-related demand.

Portfolio Highlights

The Fund returned -2.7 in June as the MSCI All Country World SMID Cap Index returned -1.5%. The Fund’s zero weighting to mid-cap stocks (>US$10bn market cap), overweight to the small caps (<US$1bn) and overweight to Europe detracted from relative returns. Stock selection in industrials and energy contributed to relative returns, but this was offset by weakness in technology, financials and communications services.

The largest contributor to the Fund’s relative returns in May was Korea’s market-leading gaming and video streaming service Soop, formerly known as AfreecaTV. The company continues to consolidate its monopoly-like position in the Korean market following the exit of Amazon-owned Twitch. The portfolio manager expects it to continue growing user numbers and earnings over the coming year.

The Fund’s holding in Japan-based Infocom, which distributes online Manga through subscriptions also performed strongly. The company was subject to a ¥280 billion (A$2.7 billion) takeover bid by US private equity group Blackstone in May; the stock outperformed in June as the share price increased to reflect the bid price.

The Fund’s overweight position in Canada-based energy services and technology company Pason Systems and the discount food retailer in the country’s remote regions North West Company also contributed to relative returns. They outperformed in June as their strong business fundamentals drove up market valuations.

The largest detractor from relative returns was UK-based, technology-focused public relations and consulting business Next 15 Group. It underperformed after releasing a trading update which was at the lower end of its previous guidance range. It experienced sluggish sales, reflecting weakness in the company’s technology clients.

The Fund’s holding in Mexico’s leading car insurance company Qualitas also detracted from relative returns in June, following a period of strong outperformance. Its share price weakness reflected broader investor uncertainty following the Mexican election, which impacted both the equity market and the value of the Mexican Peso.

The Fund established a new position in the US-listed Brazilian payments provider Pagseguro. Following deregulation in the 2010s, the market mushroomed to 2,000 competitors, before rising interest rates consolidated the market to less than ten firms. The company meets its working capital requirement – which is much higher than in North America or Europe – with low-cost deposits from its banking operation, rather than from high-cost bank loans. It is also the only company in the market to offer merchants instant cash settlement on credit and debit card payments. This is highly valued by merchants with slim margins, who in return hold their bank accounts with Pagseguro. The company is attractively valued at just ten times earnings, which have been depressed by the economic slowdown in Brazil.

UK Smaller Companies Spotlight

UK small caps have underperformed large caps, in common with those in other developed markets, over the last three years. This has been driven by economic uncertainty, rising inflation, elevated interest rates and increasing energy costs in Europe.

Small caps are perceived to be more sensitive to these factors than large caps. However, flows into (mainly large cap) passive funds in the UK have further driven small caps underperformance. Having historically delivered earnings growth comparable to the US S&P500 large cap index, UK small caps are now valued at a much lower multiple of earnings. This is currently in line with the more slowly growing UK large caps index, which appears unsustainable:

Greater political stability following the UK general election in June should give investors more certainty. Underinvestment in small caps is expected to be addressed by the introduction of tax-advantaged investment vehicles and encouraging pension schemes to invest more domestically, including into small caps.

More immediately, the UK equity market is benefitting from a wave of M&A activity. This brought takeover premiums which averaged 54% in 2023, a trend that has continued this year. Furthermore, many UK companies are actively considering relocating their listings to the US to enhance valuation multiples to US levels.

This set of circumstances in the UK provides a unique opportunity for global small cap investors. The Fund is well positioned to take advantage of this situation, with a significant overweight to UK equities.

PROFILE

Platform Availability

  • AMP North
  • Asgard eWrap
  • AET Wholesale Access Fund
  • BT Panorama
  • BT Wrap
  • Colonial First Wrap
  • Centric IDPS
  • Centric Super
  • Hub24
  • IOOF Pursuit
  • IOOF Portfolio Service
  • IOOF Core
  • Macquarie Wrap
  • Mason Stevens
  • MLC Navigator
  • MLC Wrap
  • Netwealth
  • Omniport(lifespan)
  • Powerwrap
  • Praemium
  • uXchange

STATISTICAL DATA

PORTFOLIO SUMMARY
VOLATILITY 3
12.8%
NUMBER OF STOCKS
35
BETA 4
0.73
MAXIMUM DRAW DOWN
-29.1%

FEATURES

  • APIR CODE PCL0022AU
  • REDEMPTION PRICEA$ 1.4791
  • FEES * Management Fee: 1.1%
    Performance Fee: 20.5%
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 98.49m
  • STRATEGY INCEPTION DATE 1 April 2015
  • BenchmarkMSCI All Country World SMID Cap Index unhedged in AUD

Fund Managers

Jon Moog

CIO and Portfolio Manager

Description

The Fund invests principally in small and midcap listed (or soon to be listed) global equities. Its investment objective is to obtain returns greater than the MSCI All Country World Index SMID Cap unhedged in Australian dollars (‘Index’) over rolling 3 year periods after fees. The Fund’s investment manager, Lizard Investors LLC, uses a value oriented investment approach that seeks to identify and invest in quality businesses that create significant value but are mispriced, overlooked, or out-of-favour. The investment manager believes that unique opportunities exist due to limited available research, corporate actions, or unfavourable investor perception.

EXPLORE OUR FUNDS

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Axiom International Fund
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Axiom International Fund (Hedged)
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Australian Equities Fund
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High Conviction Property Securities Fund
High Conviction Property Securities Fund
Global Small Companies Fund
Global Small Companies Fund
WHEB Sustainable Impact Fund
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Emerging Companies Fund
Emerging Companies Fund
High Conviction Equities Fund
High Conviction Equities Fund
Pengana International Equities Limited (ASX: PIA)
Pengana International Equities Limited (ASX: PIA)
Private Equity Trust (ASX: PE1)
Private Equity Trust (ASX: PE1)
Pengana Global Private Credit Trust (ASX:PCX)
Pengana Global Private Credit Trust (ASX:PCX)
Alpha Israel Fund
Alpha Israel Fund
Pengana Diversified Private Credit Fund
Pengana Diversified Private Credit Fund

1. Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. No allowance has been made for buy/sell spreads. Please refer to the PDS for information regarding risks. Past performance is not a reliable indicator of future performance, the value of investments can go up and down.
2. Inception 1st April 2015.
3. Annualised standard deviation since inception.
4. Relative to MSCI All Country World SMID Cap index unhedged in AUD.
* For further information regarding fees please see the PDS available on our website.