Leveraging market volatility to take new positions

The Fund returned +0.44% in April, underperforming the benchmark return of +2.91%.

The Fund leveraged the market volatility to opportunistically initiate several new positions and exit several positions that met our valuation targets.  We believe the new investments are attractively valued, high-quality businesses with more moderate but appealing growth prospects. Overall, it was an active month in the portfolio including adding several new positions that are each over 1% of the Fund’s NAV.

Top Holdings (alphabetically)

Brenntag AG Germany Industrials

Intertrust NV Netherlands Industrials

Kindred Group PLC Malta Consumer Discretionary

NICE Information Service Korea, Republic Of Industrials

TFI INTERNATIONAL INC Canada Industrials

Global equity markets continued their year-long rally into April. COVID-19 uncertainty continued to be a theme during the month as infection rates soared in Brazil and India, restrictions remained in Japan, and parts of continental Europe re-imposed lockdown measures. Investor sentiment continued to be undeterred as corporate profits rose, vaccine distribution accelerated, and a continuation of accommodative policies from the US Federal Reserve and European Central Bank provided ample support to sustain the rally. The US-led the major markets driven by strong corporate earnings in the quarter and further fuelled by President Biden’s proposed new stimulus plan to expand “infrastructure” and the recently passed $1.9 trillion stimulus package. European markets were also comparatively strong led by the UK and France.  Economic data, corporate earnings, and continued assurances from the ECB and the Fed delivered market support.  These factors led to renewed optimism towards a stronger economic outlook, despite Europe playing catch up on vaccination distribution and lockdown measures that weighed on the economy in previous months. Asia markets posted only a small gain, largely impacted by a minor sell-off in Japan.  The recent surge of COVID-19 infections in India and increased global tensions with China put pressure on both equity markets.

Individual stock selection was the main driver of the Fund’s performance in April. Approximately 113 bps separated the top contributor and largest detractor.  As of 30^th April, the top 10 holdings accounted for approximately 31% of the Fund’s assets, with the largest position of approximately 4.8% of the portfolio at the end of the month. Regional and sector exposure remained consistent month over month. The Fund continues to be overweight small to mid-cap names vs. the benchmark.

The Fund leveraged the market volatility to opportunistically initiate several new positions and exit several positions that met our valuation targets.  We believe the new investments are attractively valued, high-quality businesses with more moderate but appealing growth prospects. Overall, it was an active month in the portfolio including adding several new positions that are each over 1% of the Fund’s NAV.

One addition is Logista, a Spanish distribution business focusing on convenience goods.  Logista is a market leader in its space and a business that is generating significant and stable free cash flow.

Irish Continental Group operates ferries traveling between Ireland and the UK.  One of the company’s competitive advantages is that it is one of the main operators that service the shortest ferry route between the two islands.  Management has a significant ownership in the business and has been investing aggressively to consolidate the company’s market position ahead of a potential rebound in travel volume post-COVID.

U-Blox, a Swiss company that specializes in wireless semiconductors, is one of the world’s leading GPS chipset manufacturers.  The company should benefit as auto production volumes return to normal post-COVID.

Alfa, a family-controlled Mexican conglomerate, is a diversified group of businesses, mainly industrial, that produces petrochemicals, aluminum auto components, and refrigerated foods.  The company is breaking itself up which should help the market realize the significant undervaluation of certain segments, specifically their market leading food business.

Lastly, the Fund invested in Premier Antiaging, a cosmetics business based in Japan.   Premier develops and sells skin care products and it also provides consulting services related to anti-aging, beauty, and health; research on management of beauty clinics; and marketing research related to beauty.  The company has established a superior business model versus its peers, leveraging both direct and wholesale channels.  The company has also experienced rapid growth through a recurring subscription business.

The Fund exited several investments during the month.  The Fund sold Arrow Global, a UK-based credit collections business, on the back of the board approving a takeover offer from TDR Capital in the UK.  The Fund earned a strong return despite being forced out of the position too soon.  The Fund also exited Kambi, a Nordic software business servicing the sports gaming industry, after significant multiple expansions and growth drove the stock up meaningfully.  Additionally, the Fund exited both Pexip and Avast, both of which generated solid profits.  Lastly, the Fund exited a small position in Aker Biomarine, as we were concerned about the capital intensity of the business model.