CIO and Portfolio Manager
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.
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.
COMMENTARY
Market Commentary
Broader global equity markets continued to push higher in July, upon expectations that the US Federal Reserve (Fed) would begin reducing interest rates at its September meeting. This followed weaker US inflation and labour market data.
July saw investors rotate out of growth stocks, especially some which have benefitted from the rapid adoption of generative AI technologies. Investors grew more cautious that their earnings growth trajectories might not justify their lofty market valuation levels. This benefitted smaller companies, value stocks and interest rate sensitive sectors.
US smaller companies significantly outperformed large caps, marking the largest one-month outperformance of the US small cap Russell 2000 versus the technology-focussed Nasdaq in over 20 years. In the UK, stocks performed well, buoyed by the robust service sector and stronger-than-expected economic growth in the second quarter. Conversely, European equities underperformed, impacted by weaker economic data and ongoing uncertainties following the French parliamentary election.
In Asia, most equity markets performed well, led by strong performances in Taiwan, Korea and India. Stronger sentiment in Korea was driven by the potential for deals in the semiconductor sector. Japan’s technology and financial sectors strengthened, supported by the weaker yen, which helped exporters in the face of increasing import costs and inflationary pressures. Overall, July was characterised by volatility and cautious optimism regarding potential interest rate cuts.
Portfolio Highlights
The Fund returned 6.8% in July, while the MSCI All Country World SMID Cap Index returned 7.3%, but remained ahead of the benchmark over the last three months. This limited underperformance was due to a few Asian stocks retracing some of the strong gains made over recent months.
The largest contributor to the Fund’s relative return in July was its overweight position in US-based technology solutions provider ePlus. The stock outperformed upon strong demand for IT infrastructure services and solutions. Its robust performance was further supported when the broader US technology sector benefited from increased corporate spending on technology upgrades and digital transformation initiatives.
The Fund’s holding in the Israel-based Sapiens International, a leading global provider of software solutions for the insurance industry also performed strongly. Its innovative software-as-a-service (SaaS) product portfolio and expanding partner base helped deliver strong performance in July. This was further bolstered by its strong second quarter financial results, which reported a 6.6% year-on-year revenue increase.
Morinaga is one of the oldest and largest confectionery companies in Japan; it outperformed strongly in July. The company benefited from a strategic expansion of its manufacturing capacity in the US, specifically for its popular HI-CHEW candy line. This expansion is part of a broader growth strategy to meet increasing US demand. The company also increased its prices, which improved profit margins.
The Fund’s largest detractor from relative returns was its position in Korea’s market-leading gaming and video streaming service Soop, formerly known as AfreecaTV. Despite reporting solid second quarter profit growth, the market was disappointed by the lack of increase in monthly active viewers, impacting the company’s stock performance.
Mexican auto insurer Qualitas also underperformed in July, when political uncertainty surrounding the Mexican election negatively affected both the broader stock market and currency.
Canada-based energy services and technology company Pason Systems provides data management systems for drilling rigs. It underperformed the market in July following a reduction in North American drilling activity as the oil price weakened. The company’s financial results were impacted by seasonal slowdowns and lower industry activity.
In July the Fund established a position in Taiwan-based Nien Made Enterprise Co, a leading manufacturer of window coverings, including shutters, blinds, shades and related components. The company has established a strong presence in North America, its largest market, supplying both ready-made and custom-made window coverings through major retailers such as Home Depot and Walmart.
Nien Made’s strategic focus on expanding its custom-made products aligns with the growing demand for personalized and high-margin solutions in the US market. The company has transitioned to 100% cordless designs, ahead of many competitors, gaining a competitive edge.
New facilities in Mexico are expected to increase by 20% the capacity of its custom-made products by the end of 2024, enhancing margins due to lower production costs. This expansion is part of Nien Made’s broader strategy to diversify its production footprint beyond China, mitigating risks associated with rising tariffs and geopolitical tensions.
The company delivered a 26.6% rise in net income during the first quarter. Nien Made anticipates continued growth, supported by the improving US housing market and increased demand for higher-margin products. The company’s focus on vertical integration, cost efficiency and building market share leaves it well positioned to capitalise on emerging opportunities in the global window coverings market.