Global Small-Cap Equity Fund

December 31, 2019

Market Context

  • The global small-cap market (S&P Global SmallCap Index) gained 24.3% in Canadian dollar terms in 2019.
  • Technology, industrial and real estate stocks were notable areas of strength, while energy companies lagged.

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 is managed by New York-based TimesSquare Capital Management, which specializes in small-cap investing. The portfolio is expected to hold between 40 and 50 stocks around the globe. It’s currently invested in 41 companies. Seventeen are in the U.S., 15 in Europe (including the U.K.), 7 in Japan and 2 in Australia.
  • Financial services stocks comprise 22% of the fund. The manager has found compelling investments in the insurance industry. Its highly regulated nature and customer preferences for established players makes it difficult for new entrants. The fund holds Australia-based Challenger and Steadfast Group. Steadfast is the largest 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 reinsurer RenaissanceRe.
  • Technology is also a significant area of investment. Holdings include Gartner (a world leader in technology research), WEX (payment processor for commercial vehicle fleets), J2 Global (provider of messaging and communications services), and ITT (manufacturer of highly engineered components in electronics, aviation and transport markets).
  • Turnover was higher than usual in the second half of the year. Four companies were sold in the fourth quarter: Japanese real estate company Open House, retailer Izumi, U.S.-headquartered Planet Fitness, and cable services provider Cable One.
  • The proceeds of the above sales were used to add to several existing holdings and to buy Japanese discount supermarket chain Kobe Bussan. Kobe Bussan owns its own farms and is able to offer grocery staples cheaper than its competitors. TimesSquare expects revenues to grow as Japanese consumers look for affordable produce and meat in deflationary times.

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 results in low weights in commodity-related businesses and utilities.

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.