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Global Small Companies Fund

Specialists in a vast and growing investable universe

November 2022 - Monthly REPORT

Slight rally in global equities

SUMMARY

  • Global equity markets continued to strengthen in November upon further signs that inflationary pressure is starting to slow, which should allow the pace of interest rate increases to soon ease
  • The Fund’s more recently established positions in the technology sector continue to contribute to performance
  • The Fund returned 4.7% in November, while the MSCI All Country World SMID Index returned 2.5% in Australian dollars

PORTFOLIO

Top Holdings (alphabetically)

Dino Polska
Poland
Consumer Staples
"Dino Polska" Spolka Akcyjna operates as a supermarkets. The Company offers meat, sausages, groceries, fruits, vegetables, breads, food, chemical, cosmetics, and other related products. "Dino Polska" serves customers in Poland.
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.
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.
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.

Capitalisation Breakdown

Region Breakdown

PERFORMANCE

Performance Table

NET PERFORMANCE FOR PERIODS ENDING 30 Nov 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 4.7% -13.3% 0.0% 2.2% 3.1% 6.1%
MSCI All Country World SMID Cap Index unhedged in AUD 2.5% -8.0% 6.7% 5.5% 7.0% 7.8%

Swipe horizontally to see all columns

Performance Chart

NET PERFORMANCE SINCE INCEPTION2

COMMENTARY

Global equity markets continued to rebound in November, after share prices had trended downwards since the start of the year. The Fund returned 4.7% net of fees during the month, while the MSCI ACWI SMID returned 2.5% in Australian dollars.

The strength in the global equity markets was driven by robust returns of non-US shares, especially in emerging markets. This strong rebound followed a weakening of the US dollar and signs that China’s zero-COVID policy would be relaxed. US stocks made more modest gains.

The US equity market was supported by lower October headline inflation and core inflation which were below market expectations. This was an indication that the Federal Reserve’s (Fed) strategy of higher interest rates is beginning to take effect. This led investors to forecast that the pace of interest rates will now slow, with a 0.50% rise expected at the Fed’s December meeting.

While the US economy is now slowing, this appears to be at a reasonably controlled pace. Manufacturing purchasing managers’ data contracted only modestly and retail sales were better than had been expected. The US economy continues to be driven by a tight labour market which is supporting wage growth and excess savings following the pandemic which are supporting household balance sheets. However, more negative consumer sentiment is expected to impact the US economy and corporate earnings over the next few quarters.

In Europe, producer prices in Germany actually fell 4.2% in October. This is the first decline since 2000 and is the first sign that inflationary pressure is now easing. Engagement with the leadership of companies held by the Fund in the region has provided a broad indication that supply chains have improved meaningfully over the past 12 months. The preliminary November consumer price index fell to 10.0% from October’s official figure of 10.6%. The Euro area purchasing managers’ data was consistent with an easing in the pace of contraction within the economy, while European consumer confidence rebounded from October’s low. European equities rallied 6.2% in Australian dollar terms during November.

In China, the Hang Sheng Index surged in November upon the expectation that the government is beginning to lift its strict zero-Covid measures. Meanwhile in Japan, inflation rose again to 3.7%, the highest level since 2014. Investors will be interested to see how the Bank of Japan manages rising inflationary pressures for the first time in 30 years, following many years of trying to exit a deflationary spiral.

The Fund’s outperformance during November was buoyed by stock selection, especially in the communications and financials sectors. It also benefitted from its overweight exposure to Europe and the sharp reversal of the US Dollar in the month, having recently reached a 30-year high.

The Fund made relatively few stock changes this month after what has been a reasonably busy period. SoftwareOne and Integrafin continued to be among the Fund’s strongest outperformers in November.

SoftwareOne, a Swiss-based software reseller to small businesses all over the world, reported solid earnings results. Following a challenging year for the company, the new CFO has successfully implemented more effective cost controls and driven increased margins. The business is expected to continue to deliver solid organic growth over time and generate substantial cash flows, with the improvements in margins expected to be sustained. The Fund expects that the recovery in both the company’s market valuation and business fundamentals is still in its early stages.

Integrafin provides the leading investment platform ‘Transact’ used by independent financial advisors in the UK. It outperformed the market following a solid trading update in November. This was driven by stronger than expected assets under management, which drives fee income, and a modest increase in research and development. It is expected that the company will continue to deliver attractive secular growth while the company benefits from strong asset inflows as the UK market continues to transition from defined benefit to defined contribution retirement planning.

In contrast to these more recent investments, Dino Polska is one of the Fund’s longest-held investments. The Polish discount food retailer continued to deliver very strong earnings results, reporting same-store sales growth of over 30% in the September quarter. These results drove share market outperformance, making it one of the Fund’s strongest performers during November. The business model of providing higher quality products, lower prices, a modern retail shopping experience and best-in-class management continues to drive tremendous value for shareholders and customers alike.

PROFILE

STATISTICAL DATA

PORTFOLIO SUMMARY
VOLATILITY3
13.3%
NUMBER OF STOCKS
37
BETA4
0.74
MAXIMUM DRAW DOWN
-29.1%

FEATURES

  • APIR CODE PCL0022AU
  • REDEMPTION PRICEA$ 1.3643
  • FEES * Management Fee: 1.1%
    Performance Fee: 20.5%
  • Minimum initial investment A$10,000
  • FUM AT MONTH END A$ 146.72m
  • 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. 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.