U.S. Equities performed well in June. The S&P 500 rose 2.61% buoyed by large-cap tech stocks as well as the debt ceiling agreement. Economic data was healthy: retail sales were robust, core inflation cooled to 5.5%, and the labor market remained tight. The (Small Cap) Russell 2000 also fared well with a 1.23% gain.
Europe’s economic momentum in April decelerated in May. All sectors fell aside from information technology which was boosted by optimism surrounding Artificial Intelligence. Germany entered a technical recession after showing a negative growth in the first quarter of 2023 and U.K. equities fell as core inflation accelerated to 6.8%, the highest level since 1992. Nevertheless, on many 1Q earnings calls, many of the European managers still signaled a rebound in 2H 2023.
China’s economic data were much weaker than anticipated with the manufacturing PMI falling below the neutral 50-mark. China’s downturn may create a knock-on problem for the global luxury sector later this year. On the other hand, Japanese stocks did well. While core inflation continues to be strong at 4.1%, full-year earnings results were strong. Furthermore, the Tokyo Stock Exchange urged listed companies to put a stronger emphasis on increasing shareholder returns and many companies have responded.
The top five performers contributed evenly. The two most notable names were Flextronics and Melrose. FLEX performed strongly on the back of strong demand and a growing order backlog for its specialist manufacturing capabilities. Our thesis on Melrose continued to play out nicely. The spin-off of the automotive business (Dowlias) revealed to investors a strong Melrose’s Aerospace business with improving fundamentals. On the other hand, PRA Group was by far the biggest laggard, with a drag of -1.49% on total performance. We were negatively surprised by the weak first quarter results and decided to exit the position.
The Fund added a new position, Morinaga. Morinaga is one of the largest confectionary companies in Japan. It possesses the best-selling ice cream in Japan. The Company has announced its intention to improve its capital allocation policies. We expect this catalyst to drive a higher return on capital and accelerate earnings growth during the investment horizon.
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.
