Global Small-Cap Equity Fund

September 30, 2019

Market Context

  • The global small-cap market (S&P Global SmallCap Index) declined 0.5% in the third quarter in Canadian dollar terms.
  • Defensive stocks were solid performers while resource stocks 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 consists of 44 companies around the globe. Nineteen are headquartered in the U.S., 15 in Europe (including the U.K.), 8 in Japan, and 2 in Australia.
  • RPM International is one of the fund’s largest holdings. The company manufactures high-performance coatings, sealants, specialty chemicals and building materials for the construction and home improvement industries. Its brands include Rust-Oleum, Varathane, Tremco and Stonhard. While the business of coatings, cladding and adhesives isn’t exactly sexy, RPM is the best in the world at what they do. And because it has a portfolio of leading products, the company has great pricing power. RPM has delivered consistent growth under all economic conditions and has increased its dividend for 45 consecutive years.
  • The manager, TimesSquare Capital Management, is finding some compelling investments in Japan, specifically in the retailing sector. Holdings include ABC-MART (a popular athletic shoe retailer), Izumi (a retailer of clothing, household goods and groceries), and Zozo (an internet fashion company). Zozo made headlines in the quarter as its billionaire founder (Yusaku Maezawa) agreed to sell most of his stake in the company to Yahoo Japan at a 20% premium. What all these companies have in common is their ability to innovate in an age-old industry.
  • Another innovative holding in Japan is Sushiri Global, a recently-purchased stock that clients who have visited the country may be familiar with. The restaurant chain is a pioneer in using technology to make and serve sushi — using conveyor belts, robots, ordering tablets and self-serve registers — and is expanding globally. Sushiri offers high-quality food at good prices and should do well in a slower economy.
  • Four stocks were sold in the quarter: Eurofins Scientific, Disco Corporation, CoStar Group and Modern Times Group. They all remain solid businesses and were profitable investments, but could be challenged to meet higher growth expectations. In today’s market environment, this can prove costly.

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.