SUMMARY
The Fund returned +0.57% in June, outperforming the benchmark return of -0.74%.
The Fund returned +0.57% in June, outperforming the benchmark return of -0.74%.
June marked another positive month in the global equity markets, wrapping up one of the best quarterly performances for equities in a decade.
Investors were encouraged by the gradual lifting of restrictions that were imposed to contain the spread of COVID-19 along with additional stimulus from many central banks. In the U.S., equities rose, however lagged other markets. Investors looked beyond the large increase of COVID-19 cases but reports that several states planned to slow the pace of their economic re-opening sent investors to find value in other regions.
European markets led developed markets, responding positively to a general easing of economic lockdown and fresh central bank support. Emerging markets rose by over 7.3%, measured by the MSCI Emerging Markets index, in June and nearly matched the developed market return for the quarter. Japan was the weakest major market in June as the Bank of Japan pledged to maintain its low interest rate policy but declined to add any additional monetary stimulus to their economy. Global small caps ended the quarter significantly outperforming large caps.
Individual stock selection was the main driver of the Fund’s outperformance in June. Approximately 104 bps separated the top contributor and largest detractor. As of 30th June, the top 10 holdings accounted for approximately 39% of the Fund’s assets, with the largest position approximately 4.8% of the portfolio. There was a slight increase in overall exposure and nominal change in both regional and sector exposure month over month. The Fund has outpaced the benchmark 8 out of the past 9 months and 9 out of the last 13 months. Over the past year, the Fund’s upside capture has been 112% while the downside capture has been 98% vs. the benchmark generating 4% of alpha.
During the month we added a global luxury brand that specializes in handbags, travel accessories, shoes, ready-to-wear, perfumes and other fashion accessories. A turnaround is underway in product design which could have very positive ramifications. The company has also started to really penetrate the online channel, specifically in China which should serve to help propel sales going forward. We also exited two positions. We sold a UK industrial business after it had run up significantly from its’ March lows. We also exited a capital equipment manufacturer in Japan. The company has been too slow to improve the return profile on its net cash balance sheet and we view product demand as a bit tepid for the coming several years.
In prior months we discussed the divergences between segments of the markets and warned of potential trouble ahead. Because global small cap equities had been under stress before the current downturn, they were not expensive heading into this crisis. While other parts of the market look overheated, global small caps do not, particularly when looking at individual small cap companies. While there continues to be substantial near-term uncertainty, equally great opportunities await patient value investors in the coming years. Companies with solid balance sheets, good customer value propositions, and competent management will use the current crisis to improve their relative market positions. We have seen evidence of this playing out in the past quarter. We continue to be active in positioning the portfolio to capitalize on great buying opportunities in global small caps.
CIO Jon Moog recently hosted a webinar for one of our supporter dealer groups. We have included this fund update below.
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.