Portfolio commentary and our latest Fund update

• Global smaller companies strengthened in February upon signs that the global economy remains resilient and that earnings are holding up reasonably well
• Strong stock performance and an overweight position in Europe contributed to relative returns during February
• The Fund returned 3.7% in February, while the benchmark returned 1.9%

We recently recorded a short Portfolio and Investment Update webinar, which is available below for your review.

CPD points are applicable for Australian Financial Planners HERE.

Top Holdings (alphabetically)

Freni Brembo SpA

Italy

Consumer Discretionary

Brembo S.p.A. designs, manufactures, and markets disc braking systems and components.The Company's products include brake discs, wheel-side modules, and high performance brakes for automobiles, light commercial and heavy industrial ve hicles, motorbikes, and racing cars. Brembo markets its products worldwide.

Irish Continental Group PLC

Ireland

Industrials

Irish Continental Group, Public Limited Company markets holiday packages and provides passenger transport, roll-on and roll-off freight transport, and container lift-on and lift-off freight services between Ireland, the United Kingdom, and Continental Europe.

Orion Engineered Carbons

United States

Materials

Orion Engineered Carbons S.A. is a global supplier of Carbon Black. The company offers products for coatings, printing inks, polymers, rubber and other applications.

PRA Group

United States

Financials

PRA Group, Inc. provides outsourced receivables management. The Company purchases, collects, and manages portfolios of defaulted consumer receivables.

Sendas Distribuidora SA

Brazil

Consumer Staples

Sendas Distribuidora S/A distributes consumer goods. The Company provides a wide variety of foods, household products, clothes, and toiletries. Sendas Distribuidora serves customers in Brazil.

Global smaller companies made gains in Australian dollar terms during February, supported by a weaker Australian dollar. This reflects a fairly resilient global economy which continues to support company earnings growth.

The Fund returned 3.7% net of fees in Australian dollar terms during February, outperforming the MSCI All Country World SMID Cap Index, which was up 1.9%.

US smaller companies performed well during February, but face continued interest rate rises as the Federal Reserve attempts to bring inflation back under control. Rising US interest rate expectations helped push up the value of the US dollar by 2.7% against a basket of currencies during the month.

European share markets performed strongly as economic data indicated an improving outlook, especially in manufacturing. The war in Ukraine has entered its second year and whilst the human cost remains high, it now appears to be impacting energy markets and economic activity less.

Japanese smaller companies underperformed as the yen weakened when the Bank of Japan indicated it would not raise interest rates aggressively and would support higher wage growth. A weaker currency will support exporters and businesses that depend on overseas tourists.

The Fund outperformed its benchmark by 1.8% in February due to strong stock picking, especially in Western Europe. Stocks in materials, consumer discretionary and technology performed well and the Fund also benefitted from its overweight in technology and underweight in real estate.

Luxembourg-based international specialty chemicals company Orion Engineered Carbons was the Fund’s top performer in February. It benefitted as the price of carbon black continued to increase.

The position in Italian manufacturer of premium auto braking systems Brembo was only established in January this year. However, it was the Fund’s second most significant contributor to relative returns as the auto sector returned to more normal activity levels.

Taiwan-based, high-value, low-volume flash memory producer Innodisk was a strong contributor to relative returns after it continued to deliver excellent earnings results.

Megacable is a Mexico-based provider of internet and phone services. It continued to underperform despite good earnings results as investors grew more concerned about the level of competition in the Mexican cable market. 

Brazil-based Sendas Distribuidora (known also as Assai) operates Assai-branded cash and carry stores in Brazil and various supermarket brands in Columbia, Uruguay and Argentina. Following a strong January, it underperformed in February upon slightly lower-than-expected margins.

Integrafin provides an investment platform called ‘Transact’ that is used by UK independent financial advisors. It underperformed the market in February following a particularly strong January.

The Fund established new positions in five companies during February:

Envestnet is a provider of wealth management software and services to financial advisors in the US. The company is deeply embedded in its clients’ business operations, allowing advisors to offer their investors a broad set of investment solutions.

TriNet helps small and medium sized businesses in the US manage HR, payroll, and employee benefits. Customer relationships tend to be long-term given the frictions involved in switching providers. The business continues to grow strongly and generate positive cashflow.

The Fund also added ePlus, a full-service US-based technology provider. The company integrates and manages customer IT networks and has promoted sector consolidation.

Now Inc is a US-based distributor providing a variety of machinery and parts for the energy industry. The business is now expected to generate positive cashflow after a significant restructuring and following improvements in underlying industry trends.

Norma Group is a German industrial business with significant auto exposure. It is expected to improve margins in the near-term and grow earnings as the industry returns to normal.