Global Small-Cap Equity Fund

March 31, 2019

Market Context

  • The global small-cap market (S&P Global SmallCap Index) rose 10.7% in the first quarter in Canadian dollar terms.
  • Technology, real estate and healthcare stocks were strong performers.

Portfolio Specifics

  • Securities regulations prohibit us from discussing performance until the fund reaches the 1-year mark. Our discussion will focus instead on the characteristics and investment merit of select holdings.
  • The fund consists of 46 companies around the globe. Twenty are headquartered in the U.S., sixteen in Europe (including the U.K.), eight in Japan, and two in Australia.
  • The two Australian holdings, Challenger and Steadfast Group, are both involved in the insurance business. Steadfast is the largest general insurance broker in Australia and New Zealand, while Challenger sells annuity products in Australia and Japan. The fund also holds Danish insurer Topdanmark and Bermuda/U.S.-based property and catastrophe re-insurer RenaissanceRe. The manager, TimesSquare Capital Management, likes the insurance sector because of its high barriers to entry. Financial services companies as a group make up 18% of the fund.
  • TimesSquare has found compelling investment ideas in the technology sector, which is the fund’s largest area of investment comprising nine stocks and 21% of the portfolio. Examples include: Gartner (a world leader in technology research); ITT (manufactures highly engineered components for the electronics, aviation, and transportation markets); J2 Global (provides messaging and communication services); WEX (provides payment processing technology, specializing in commercial vehicle fleets); and Tyler Technologies (designs software solutions for government organizations and school districts).
  • The healthcare industry is also a key area of interest, comprising 17% of the fund’s investments. Holdings are concentrated in care facilities (Chemed, Orpea, Encompass Health,) and medical testing (Bio-Rad Laboratories, Charles River Laboratories, Eurofins). Amplifon, a Milan-based global leader in hearing aids, is also a company the manager likes because of its leading technology and brand name recognition.
  • A unique trait that TimesSquare looks for is businesses that make critical inputs which are a small cost in the overall development of a final product or service. Examples include Horiba, ITT, Nordson, and Interpump Group.

Positioning

  • The fund invests in businesses with a clear competitive edge, a record of consistent earnings growth, and management that has clear goals and a record of success.
  • This approach will result in low weights in commodity-related business, utilities and real estate companies.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Important information about the Steadyhand funds is contained in our Simplified Prospectus. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.