Global share markets roared back in January as investor attention turned to the prospect that interest rate rises might soon end and could begin to fall later this year. Smaller companies outperformed the broader market while volatility returned to more normal levels having remained elevated throughout much of the previous year.
The Fund increased 4.6% net of fees in January, outperforming the MSCI All Country World SMID Index which rose 4.3% in Australian dollar terms, due in large part to its underweight position in North America as the US dollar weakened. The lower average market capitalisation of the stocks within the portfolio also made a meaningful contribution to the outperformance.
Investors detected a softening of central bank sentiment as they seek to bring inflation back under control. The U.S. Federal Reserve raised rates by 0.25% to 4.50% – 4.75% just after the period end, following the 0.50% cut at its December meeting. The European Central Bank also signalled a less hawkish approach to future interest rate rises.
The Fund established a position in Brembo, an Italian company which holds a dominant position in the premium brake market. The company has benefitted from the growth in demand for electric vehicles and the greater focus on emissions by manufacturers of conventional autos. The company produces lightweight, high-performance brakes, which deliver meaningful efficiency benefits to the automotive industry, and enjoy strong demand.
The Fund expects Brembo to continue to take market share while maintaining robust margins thanks to its strong competitive advantage. The Fund established its position at a valuation level which had become attractive upon concerns for the global economy and auto demand. The business continues to show resilient revenue and earnings growth.
Relia, a Japanese provider of outsourced customer relationship management, was the Fund’s largest contributor to relative returns during January. This followed the bid by its parent Mitsui to fully acquire the company. Legal changes implemented in Japan over recent years appear to be delivering an improvement in corporate governance and are creating opportunities for investors in smaller businesses.
CIO and Portfolio Manager
Head of Research 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.
