July Report

• Global equity markets delivered further gains in July as weaker inflation brought rising expectations that US interest rates would start falling in September.
• Share markets were volatile, but hopes of near-term US rate cuts drove smaller company outperformance, as larger growth stocks weakened.
• The Fund returned 6.8% in July, while the benchmark delivered 7.3%, as global equity returns were boosted by the weaker Australian dollar.

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.

GILDAN ACTIVEWEAR INC

Canada

Consumer Discretionary

Gildan Activewear, Inc. engages in the manufacture and sale of print wear and branded apparel. Its products include activewear, underwear, socks, hosiery, and legwear. The firm operates under the brand names Gildan, Alstyle, American Apparel, Comfort Colors, GOLD TOE, Anvil, Secret, Silks, and Peds. The company was founded by Glenn J. Chamandy and H. Gregory Chamandy on May 8, 1984 and is headquartered in Montreal, Canada.

Glanbia PLC

Ireland

Consumer Staples

Glanbia Plc engages in the manufacture and distribution of dairy and nutritional ingredients. It operates through the following segments: Glanbia Performance Nutrition, Glanbia Nutritionals, and All Other Segments. The Glanbia Performance Nutrition segment manufactures and sells performance nutrition products. The Glanbia Nutritionals segment produces and sells cheese, dairy and non-dairy nutritional ingredients. The All Other segment includes both the results of other equity accounted investees who manufacture and sell cheese and dairy ingredients and unallocated corporate costs. The company was founded in 1997 and is headquartered in Kilkenny, Ireland.

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.

Market Commentary

Broader global equity markets continued to push higher in July, upon expectations that the US Federal Reserve (Fed) would begin reducing interest rates at its September meeting. This followed weaker US inflation and labour market data.

July saw investors rotate out of growth stocks, especially some which have benefitted from the rapid adoption of generative AI technologies. Investors grew more cautious that their earnings growth trajectories might not justify their lofty market valuation levels. This benefitted smaller companies, value stocks and interest rate sensitive sectors.

US smaller companies significantly outperformed large caps, marking the largest one-month outperformance of the US small cap Russell 2000 versus the technology-focussed Nasdaq in over 20 years. In the UK, stocks performed well, buoyed by the robust service sector and stronger-than-expected economic growth in the second quarter. Conversely, European equities underperformed, impacted by weaker economic data and ongoing uncertainties following the French parliamentary election.

In Asia, most equity markets performed well, led by strong performances in Taiwan, Korea and India. Stronger sentiment in Korea was driven by the potential for deals in the semiconductor sector. Japan’s technology and financial sectors strengthened, supported by the weaker yen, which helped exporters in the face of increasing import costs and inflationary pressures. Overall, July was characterised by volatility and cautious optimism regarding potential interest rate cuts.

Portfolio Highlights

The Fund returned 6.8% in July, while the MSCI All Country World SMID Cap Index returned 7.3%, but remained ahead of the benchmark over the last three months. This limited underperformance was due to a few Asian stocks retracing some of the strong gains made over recent months.

The largest contributor to the Fund’s relative return in July was its overweight position in US-based technology solutions provider ePlus. The stock outperformed upon strong demand for IT infrastructure services and solutions. Its robust performance was further supported when the broader US technology sector benefited from increased corporate spending on technology upgrades and digital transformation initiatives.

The Fund’s holding in the Israel-based Sapiens International, a leading global provider of software solutions for the insurance industry also performed strongly. Its innovative software-as-a-service (SaaS) product portfolio and expanding partner base helped deliver strong performance in July. This was further bolstered by its strong second quarter financial results, which reported a 6.6% year-on-year revenue increase.

Morinaga is one of the oldest and largest confectionery companies in Japan; it outperformed strongly in July. The company benefited from a strategic expansion of its manufacturing capacity in the US, specifically for its popular HI-CHEW candy line. This expansion is part of a broader growth strategy to meet increasing US demand. The company also increased its prices, which improved profit margins.

The Fund’s largest detractor from relative returns was its position in Korea’s market-leading gaming and video streaming service Soop, formerly known as AfreecaTV. Despite reporting solid second quarter profit growth, the market was disappointed by the lack of increase in monthly active viewers, impacting the company’s stock performance.

Mexican auto insurer Qualitas also underperformed in July, when political uncertainty surrounding the Mexican election negatively affected both the broader stock market and currency.

Canada-based energy services and technology company Pason Systems provides data management systems for drilling rigs. It underperformed the market in July following a reduction in North American drilling activity as the oil price weakened. The company’s financial results were impacted by seasonal slowdowns and lower industry activity.

In July the Fund established a position in Taiwan-based Nien Made Enterprise Co, a leading manufacturer of window coverings, including shutters, blinds, shades and related components. The company has established a strong presence in North America, its largest market, supplying both ready-made and custom-made window coverings through major retailers such as Home Depot and Walmart.

Nien Made’s strategic focus on expanding its custom-made products aligns with the growing demand for personalized and high-margin solutions in the US market. The company has transitioned to 100% cordless designs, ahead of many competitors, gaining a competitive edge.

New facilities in Mexico are expected to increase by 20% the capacity of its custom-made products by the end of 2024, enhancing margins due to lower production costs. This expansion is part of Nien Made’s broader strategy to diversify its production footprint beyond China, mitigating risks associated with rising tariffs and geopolitical tensions.

The company delivered a 26.6% rise in net income during the first quarter. Nien Made anticipates continued growth, supported by the improving US housing market and increased demand for higher-margin products. The company’s focus on vertical integration, cost efficiency and building market share leaves it well positioned to capitalise on emerging opportunities in the global window coverings market.