Global smaller companies were slightly weaker during March, but this was somewhat offset by a weaker Australian dollar. Small cap weakness largely reflected investor preference for more liquid, larger stocks – especially the mega tech companies – rather than any change in their fundamental view of smaller companies.
The Fund returned -0.1% net of fees in Australian dollar terms during March, outperforming the MSCI All Country World SMID Cap Index, which declined by 0.7%.
Strong performance by large-cap stocks during March, globally but especially in the US, leaves smaller caps valued at an even greater discount to their larger peers. This provides an attractive investment opportunity in smaller companies for long-term investors.
Global share markets grew more volatile for a period during the middle of the month, following banking sector uncertainty in early March. Fortunately for smaller company investors, credit availability remains reasonably good, despite rising interest rates.
Headline inflation in the Eurozone fell from 8.5% in February to 6.9% in March, mainly driven by falling energy and food prices (i.e. core inflation was little changed over the month). The UK equity market rose despite the housing market falling at its fastest annual rate since the 2007–2008 global financial crisis.
Japan’s business sentiment reached its lowest level in more than two years, reflecting slowing global growth and rising living costs. Furthermore, from July 2023 the government will require export clearance for all leading-edge semiconductor manufacturing equipment. This follows US pressure to align with its own export controls. Japan’s government will need to carefully balance its strategic priorities and the needs of its export-driven economy.
The Fund outperformed its benchmark by 0.6% in March due to strong stock selection in Asia and in the health care and materials sectors. Returns also benefitted from the underweight to financials, the overweight to technology and the zero weight to real estate.
Taiwan-based, high-value, low-volume flash memory producer Innodisk was a strong contributor to relative returns in March. The company released separate sales data related to artificial intelligence, which is expected to grow rapidly.
RayCo, a Korean-based dental radiation equipment manufacturer, was the Fund’s second largest contributor to relative returns as sales activity in Korea and China accelerated.
Melrose, a UK-based investment holding company was another strong contributor to relative returns. This followed the company providing details concerning the planned spin-off of the auto and aerospace businesses, which were well received by investors.
Switzerland-based software company Software One underperformed in March. This reflected weak investor sentiment, despite the lack of any change to the company’s fundamentals.
Brazilian-based Sendas Distribuidora (also known as Assai) operates Assai-branded cash and carry stores in Brazil and various supermarket brands in Columbia, Uruguay and Argentina. It underperformed when its strategic shareholder reduced its interest in the company and local investors allocated more funds to fixed income.
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.
