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Global Small Companies Fund

Specialists in a vast and growing investable universe

April 2022 - Monthly REPORT

Concentrating capital

SUMMARY

The Fund was down -2.6% for the month, the index declined -2.2% in April 2022.

  • A mixing pot of negative news for the month caused the market to sell off aggressively, adding to an already tough start to the year.
  • Benchmark relative performance was negatively impacted by the strength of the USD as the Fund has a significant underweight to the US.
  • We continued to concentrate capital, exiting 3 smaller positions and adding to Relia, an industry leading CRM business in Japan.
  • While the sell-off has been challenging, signs of value are starting to emerge.

PORTFOLIO

Top Holdings (alphabetically)

Cogeco Communications
Canada
Communication Services
Cogeco Communications Inc. is a cable television operator. The Company markets basic cable television services and various discretionary services, which include pay television, audio programming, and high-speed Internet access by cable modem. Cogeco Communications serves customers throughout Canada.
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.
Serco Group PLC
United Kingdom
Industrials
Serco Group plc provides outsourcing services to governments, international agencies, and corporations located throughout the world. The Company manages facilities, projects, and information technology systems. Serco runs scientific establishments, provides critical information to manage traffic, maintains buildings, and operates railways.
Softchoice Corp
Canada
Information Technology
Softchoice Corporation provides information technology services. The Company offers cloud, hybrid IT, end user productivity, security, and managed services. Softchoice serves clients in Canada and the United States.
TietoEVRY Oyj
Finland
Information Technology
TietoEVRY Oyj operates as a software and services company. The Company offers software engineering solution, cloud transformation, artificial intelligence tools, digitalization, and managed services. TietoEVRY serves customers worldwide.

Capitalisation Breakdown

Region Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 30 Apr 20221
1 MTH 1 YEAR 2 YEARS P.A. 3 YEARS P.A. 5 YEARS P.A. SINCE INCEPTION P.A.
Global Small Companies Fund -2.6% -8.3% 12.3% 4.8% 5.9% 7.1%
MSCI All Country World SMID Cap Index unhedged in AUD -2.2% -2.2% 15.2% 7.5% 8.6% 8.1%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

April was marked by a significant increase in global uncertainty. Among the biggest questions was how aggressively the U.S. Fed would deal with four-decade high inflation through inevitable interest-rate rises? The knock-on effect is to potentially force the global economy into recession, dashing investors’ dreams of a “soft-landing”.  Adding to the global wall of worry was China’s Zero-Covid policy and lockdown of key geographic areas.  This served to kick the feet from under global supply chains just as they were attempting to stand up again.  The Russia – Ukraine conflict seems to have moved off the front page given the deluge of economic issues, however, the energy and food supply issues created by the conflict are very real.

All this negative news caused the market to sell off aggressively, adding to what has already been a very tough start to the year.  The S&P 500 traded down nearly -9% in April closing the YTD run of more than -13%. From a historical perspective, this is the worst start to a year since 1939. The tech-heavy Nasdaq also hit a fresh low for 2022 having fallen -13% in April. The U.S. dollar as measured by the DXY index resumed its relentless rise, increasing by 5% in April alone as investors fled to the safe haven. We continue to see this as unsustainable and expect it to reverse when global growth resumes.  While the sell-off has been challenging, signs of value are starting to emerge.  Timing is always uncertain but equities outside the U.S. are looking cheap.  The MSCI All Country World Index ex-US is trading at 12.2x forward earnings.  That is currently in the 22nd percentile going back 20 years.

The Fund’s underperformance against the index was mainly driven by a large currency effect, accounting for a 1.8% headwind. The stronger USD should increase the competitiveness of non-US companies as consuming American goods and services will become more expensive in all markets, and American consumers will be increasingly incentivised to source goods offshore.

We continued to concentrate capital in the Fund and exited three smaller positions through the month.  As of April 30th, we held 42 positions with the top ten holdings accounting for 39.5% of the Fund’s assets. The largest position approximately 6.1% of the portfolio

We added to our holding in Relia an outsource-led business model operating in the customer relationship management (CRM) business in Japan. Relia is one of the leaders in the industry, which should grow as Japan moves towards outsourcing.  The company is run conservatively and is trading at 12x earnings, with over a third of its market cap in cash.  The company is trading 7-8x earnings ex-cash, offering investors both an attractive valuation and good downside protection.

PROFILE

STATISTICAL DATA

PORTFOLIO SUMMARY
VOLATILITY3
12.9%
NUMBER OF STOCKS
42
BETA4
0.75
MAXIMUM DRAW DOWN
-20.7%

FEATURES

  • APIR CODE PCL0022AU
  • REDEMPTION PRICEA$ 1.494
  • FEES * Management Fee: 1.1%
    Performance Fee: 20.5%
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 169.22m
  • STRATEGY INCEPTION DATE 1 April 2015
  • BenchmarkMSCI All Country World SMID Cap Index unhedged in AUD

Fund Managers

Jon Moog

CIO and Portfolio Manager

David Li

Head of Research and Portfolio Manager

Description

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.

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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. 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.