Global Small-Cap Equity Fund

September 30, 2020

Market Context

  • The global small-cap market (S&P Global SmallCap Index) rose 5.5% in the third quarter in Canadian dollar terms.
  • Consumer discretionary, materials, and industrial companies were strong performers while energy, utilities and financial services lagged.

Portfolio Specifics

  • The fund is managed by New York-based TimesSquare Capital Management, which specializes in small-cap investing. The portfolio is expected to hold between 40-50 stocks around the globe. It’s currently invested in 39 companies. Fifteen are based in the U.S., 11 in Europe, 5 in Japan, 4 in the U.K., 3 in Australia, and 1 in Asia.
  • Many holdings saw solid price gains in the quarter. The top contributors to performance included a diverse range of businesses: Nordic Entertainment Group (the Nordic region’s leading entertainment provider), Teleperformance (a leader in call centers and outsourced customer experience solutions), Charles River Laboratories (provides lab services for the discovery and manufacture of drugs), and Amplifon (the world’s largest hearing aid retailer).
  • Technology and internet-related stocks have been the market darlings throughout the pandemic, but these companies, many of which are in the red financially, have been labeled as overhyped by many observers. While the fund has exposure to the sector (investments include Zynga, Gartner, and recent addition Huya), our focus is on profitable companies — an important qualifier in our investment process.
  • Three stocks were purchased, all of which exemplify the manager’s broad scope when looking for opportunities. Huya is a Chinese leader in streaming video games. It has a dominant market share in a fast-growing industry. IPH Limited is an Australian firm that offers a range of intellectual property (IP) services such as patent and trademark registrations for companies introducing products into Australia and Southeast Asia. Rexnord is a Milwaukee-based leader in motion control solutions (for the aerospace industry and others) and has a growing water management division.
  • Two stocks were sold based on heightened uncertainty to their business models stemming from COVID-19: Cushman & Wakefield (real estate services) faces a difficult landscape for commercial leasing; while ABC-Mart (Japanese shoe retailer) will likely see further pressure from a decline in retail foot traffic. Apollo Global Management (an alternative investment manager) was sold following a run of strong performance. J2 Global (internet services) was also eliminated.
  • The fund currently has a cash position of 7%.

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.

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.