Global Small-Cap Equity Fund

March 31, 2020

Market Context

  • The global small-cap market (S&P Global SmallCap Index) fell 28.4% in the first quarter in Canadian dollar terms.
  • Every sector of the market saw a double-digit decline with energy, consumer discretionary and financial stocks the hardest hit.

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 43 companies. Eighteen are in the U.S., 11 in Europe, 8 in Japan, 4 in the U.K., and 2 in Australia.
  • The fund had a challenging quarter as there was no escaping the broad market selloff. And while it declined 7.5% over its first 12 months, it fared much better than the index (-19.7%).
  • In this unprecedented environment where many businesses are forced to temporarily curb their operations, the manager is keeping a close eye on the balance sheets of the companies we own to make sure they can manage through a period of lower revenues. They are confident in the portfolio’s ability to weather this storm.
  • The hardest hit holdings in the quarter included WEX (payment processing and fleet management), National Vision Holdings (optical retailer), Challenger Financial (provider of annuities and insurance) and Performance Food Group (food service and distribution). Each company is a leader in its industry. While their revenues are taking a hit from the impact of the coronavirus, they have solid business models and offer products and services that will see a rebound in demand once daily life normalizes. Additional shares were purchased in each stock.
  • Two holdings benefited specifically from the quarantine measures that have been put in place around much of the world: Kobe Bussan and Zynga. Kobe Bussan is a low-cost grocery chain in Japan that’s seeing strong business as people stock up on food; and Zynga is a video game developer with a focus on mobile and web-based games (a solace for many people confined to home), including the popular FarmVille and Words with Friends.
  • Four companies were purchased: Clean Harbors (waste disposal and environ-mental services), Bodycote (specialty heat treatment of metals), Nippon Shinyaku (pharmaceuticals), and Zynga (see above). Conversely, two holdings were sold based on strong performance, Altran Technologies (which was acquired) and Nordson.
  • The fund currently has a cash position of 3%.

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.