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Global Small Companies Fund

Specialists in a vast and growing investable universe

September 2024 - Monthly REPORT

September Report

SUMMARY

  • Global equity markets were volatile in September, but closed higher in local currency terms after the US began to ease monetary policy, raising hopes of a soft landing.
  • This boosted smaller companies which are particularly sensitive to interest rates.
  • The Fund returned -3.3% in September, while the benchmark delivered +0.3%.

Fund Manager Jon Moog recently provided a portfolio update and insights from the reporting season, which is available below for your review. CPD points are applicable for Australian Financial Planners HERE.

PORTFOLIO

Top Holdings (alphabetically)

Baltic Classifieds Group PLC
United Kingdom
Communication Services
Baltic Classifieds Group Plc engages in the business of online classifieds portal for automotive, real estate, jobs and services, and general merchandise. The company was founded in 1999 and is headquartered in London, the United Kingdom.
ePlus Inc
United States
Information Technology
ePlus, Inc. engages in the provision of information technology (IT) solutions that enable organizations to optimize their IT environment and supply chain processes in the United States. It operates through the Technology and Financing segments. The Technology segment offers hardware, perpetual and subscription software, maintenance, software assurance, and internally provided and outsourced services, and advanced professional and managed services, including ePlus managed, professional, security, staff augmentation, server and desktop support, and project management services. The Financing segment specializes in arrangements, such as direct financing, sales-type, and operating leases, loans and consumption-based financing arrangements, and underwriting and management of IT equipment and assets. Its financing operations consist of sales, pricing, credit, contracts, accounting, risk management, and asset management. This segment primarily finances IT equipment, communication-related equipment, and medical equipment, and industrial machinery and equipment, office furniture and general office equipment, transportation equipment, and other general business equipment directly, as well as through vendors. The company was founded by Bruce M. Bowen in 1990 and is headquartered in Herndon, VA.
IntegraFin Holdings PLC
United Kingdom
Financials
IntegraFin Holdings PLC operates as a holding company. The Company, through its subsidiaries, provides an investment platform to UK financial advisers and their clients through proprietary technology, a range of tax wrappers, and a variety of assets. IntegraFin serves clients in the United Kingdom.
Noritsu Koki Co Ltd
Japan
Industrials
Noritsu Koki Co., Ltd. engages in the manufacture and sale of environment solution, kitchen, and photo processing equipment. It operates through the following segments: Monodzukuri, Health Care, Drug Discovery, Senior Life, Agricultural Food, and Others. The Monodzukuri segment handles research, development, production, and sale of pens and cosmetic parts. The Health Care segment provides radiology services, survey data, and genetic testing. The Drug Discovery segment provides research, development and sale of biopharmaceuticals. The Senior Life segment handles publication and mail order services for seniors. The Agricultural Food segment produces and sells fresh vegetables. The Others segment handles investigation and investment of new growth areas. It also offers mail order for dental materials and development and sale of drug treatment database for insurance companies. The company was founded by Kanichi Nishimoto in June 1951 and is headquartered in Tokyo, Japan.
On the Beach Group PLC
United Kingdom
Consumer Discretionary
On The Beach Group Plc operate as online travel agent. It provides interface between people and third party suppliers of travel products, such as flights and hotels. The firm also acts as an agent in processing customer booking with the airline not being the airline's agent. It operates through the following segments: OTB, International, CCH, and CPH. The company was founded on August 17, 2015 and is headquartered in Stockport, the United Kingdom.

Capitalisation Breakdown

Region Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 30 Sep 2024 1
1 MTH 1 YEAR 2 YEARS P.A. 3 YEARS P.A. 5 YEARS P.A. SINCE INCEPTION P.A.
Global Small Companies Fund -3.3% 6.9% 10.3% -3.6% 4.7% 6.0%
MSCI All Country World SMID Cap Index unhedged in AUD 0.3% 16.8% 15.9% 4.5% 8.6% 8.5%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

The start of September brought more volatility to global equity markets, as fears grew that the global economy was slowing faster than expected. However, stocks recovered when the US Federal Reserve (Fed) reduced interest rates by 0.50% to 4.75% – 5.00%, which especially boosted smaller companies. Global equities ended the month higher in local currency terms, but a weaker US dollar detracted from returns in Australian dollar terms.

Meanwhile, European share markets made steady gains, driven by rising consumer spending in peripheral economies and continuing moderation in energy costs. The European Central Bank (ECB) reduced interest rates to 3.50% in September, its second such cut of this monetary cycle. Inflation reached 2.2% in August, its lowest level in three years, which should allow further rate cuts over the coming quarters. Despite these positive developments, France continues to face challenges in implementing structural reforms.

Japanese equities performed well during September, benefitting from a stronger yen. Japan’s new Prime Minister Shigeru Ishiba, who was to take office on 1 October, indicated a softer stance on monetary policy, which eased share market concerns. Japan’s business sector performed well as it focusses on capital efficiency and corporate governance continues to improve.

The broader global macroeconomic environment remains supportive, with inflation under control and most central banks now cutting interest rates. Geopolitical risks such as the Middle East and Ukraine kept market volatility elevated, but equities continued to rise. Investors are now focusing on November’s US presidential election and its potential global economic implications.

Global small caps are well placed to benefit from looser monetary policy. The US, Eurozone and most other developed economies (except Japan and Australia) are now reducing interest rates, which historically benefits smaller company stocks. Also the US Treasury yield curve has now normalised, i.e. longer-term yields are again higher than shorter-term. This reflects expectations of further interest rate cuts in the near-term, while stronger longer-term economic growth is expected to eventually require higher interest rates.

Falling interest rates and a positively sloped yield curve indicate a soft landing in the global economy is likely, which should help small caps outperform. Moreover, smaller company stocks are now priced at historically steep discounts to large caps.

Portfolio Highlights

The Fund returned -3.3% in Australian dollar terms during September, while the MSCI World SMID Cap Index returned +0.3%. The underperformance was driven by a few weaker stocks in communications services, consumer discretionary and information technology, which were somewhat offset by stronger stock performance in information technology.

The Fund’s largest contribution to relative returns in September was its overweight position in Lithuania-based Baltic Classifieds Group, the market leading core online classifieds business across the Baltics. The company experienced a boom in demand, which rebounded strongly from an earlier period of reduced consumer spending, caused by inflation-driven cost of living pressures. The company has benefited from the accelerating trend towards digitalisation of used car sales and the ongoing shift towards online marketplaces. This has driven robust growth in the classifieds industry throughout the region.

North West Company is a Canadian discount food retailer serving Canada and Alaska’s remote regions, which is held in the Fund. It outperformed after delivering strong second quarter earnings, driven by robust 6.8% same-store sales growth in its Canadian operations. It improved gross margins through effective cost control and implementing pricing enhancements. The company continues to expand its store base in the rural parts of North America.

The Fund’s largest detractor from relative returns in September was its holding in UK-based, technology-focused public relations, marketing and consulting business Next 15 Group. It underperformed upon losing a significant contract and weaker spending across the technology sector. The position has since been exited.

The Fund continually analyses past investments to identify ways to improve its process. This has found that maintaining positions in stocks that report disappointing earnings results has detracted from relative returns.

The Fund has now introduced tools and technology to measure company performance more objectively, to mitigate emotional anchoring to Fund positions. It will also implement a more data-driven approach to managing the process of exiting a position, drawing on objective analysis of a company’s fundamentals. These enhancements to the investment process should help portfolio managers better manage stock-specific risk.

PROFILE

Platform Availability

  • AMP North
  • Asgard eWrap
  • AET Wholesale Access Fund
  • BT Panorama
  • BT Wrap
  • Colonial First Wrap
  • Centric IDPS
  • Centric Super
  • Hub24
  • IOOF Pursuit
  • IOOF Portfolio Service
  • IOOF Core
  • Macquarie Wrap
  • Mason Stevens
  • MLC Navigator
  • MLC Wrap
  • Netwealth
  • Omniport(lifespan)
  • Powerwrap
  • Praemium
  • uXchange

STATISTICAL DATA

PORTFOLIO SUMMARY
VOLATILITY 3
12.9%
NUMBER OF STOCKS
33
BETA 4
0.73
MAXIMUM DRAW DOWN
-29.1%

FEATURES

  • APIR CODE PCL0022AU
  • REDEMPTION PRICEA$ 1.4826
  • FEES * Management Fee: 1.1%
    Performance Fee: 20.5%
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 83.66m
  • STRATEGY INCEPTION DATE 1 April 2015
  • BenchmarkMSCI All Country World SMID Cap Index unhedged in AUD

Fund Managers

Jon Moog

CIO 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. 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.