The Fund decreased in June, underperforming the benchmark. The best performing companies were Kingspan, Straumann and Hilton Food Group. CIE, IMA and BE Semiconductor were the worst performers.

The European small-cap index fell by 1.1% in June. International politics dominated news flow in June with Trade War rhetoric driving market volatility. While the tariff commitments announced to date are as yet relatively immaterial in the context of global trade, and unlikely to derail economic growth, fears of escalating tensions are pushing markets lower. This negative sentiment drove Industrial companies lower, particularly those in the Automobile supply chain, which created a strong headwind for our strategy given significant exposure to that sector. Good buying opportunities often emerge amid such sentiment-driven volatility. Fundamental economic data, meanwhile, remains broadly supportive – particularly in the US where confidence, production, spending and earnings data depict a strong economy. In Europe, the core market of most of our investments, June saw a modest improvement in economic indicators and supportive comments from the ECB, with Draghi suggesting no rate rises until September 2019 at earliest.

Denmark, Ireland and Italy were the best performing countries during June while Germany, Austria and France were the worst. Healthcare, telecoms and utilities were the best performing sectors during the month while materials, consumer discretionary and IT were the worst.

We purchased a new position in TKH Group during the month. TKH is a Dutch company bought as a ‘Special Situation’ investment. They are in the midst of a substantial corporate transformation, shifting from a manufacturer of largely commoditised components to a provider of valuable, integrated solutions. While this range of solutions is broad – ranging from surveillance and intercom systems from parking garages and tunnels to airport runway lighting systems and tyre manufacturing systems – they are all built upon advanced proprietary technology and a clear focus on customers’ needs. We believe that the long-term profitable growth prospects created by this transformation are undervalued by the market.

We sold our position in the Swiss dental implant producer Straumann during the month. The shares have enjoyed tremendous success over recent years on the back of a well-conceived and executed strategy, growing their penetration globally in all segments of the dental implant market. We have been consistently reducing the portfolio weighting over the past year as the market cap continued to increase. In the interest of remaining true small-cap investors we have exited the position altogether as the market cap now exceeds EUR 10bn. We have redeployed the capital into exciting new opportunities in European small-caps, specifically the abovementioned TKH.

We welcome the news this month that UK Government proposes to clarify the fiduciary duties of pension schemes in law, in particular requiring schemes to consider and state publicly their approach to ESG factors. Specifically, this will mean a change to UK law to require trustees ‘to consider the impacts on their investments from a changing environment, corporate governance and social trends’. On a broader view we have seen the European Commission publish legislative proposals linked to the Action Plan on Sustainable Finance. This includes a legislative proposal to clarify investors’ legal obligation to consider sustainability factors in investment decisions. This could provide additional momentum in transitioning to a more sustainable and long-term oriented financial system, which we support.

Looking forward, European growth should remain robust and we expect further moderate monetary policy tightening from Central Banks. Given the greater domestic focus of European small-caps we believe the asset class is well placed to benefit from the macroeconomic improvement. Politics will remain an important influence on market sentiment - particularly the continuing evolution of Brexit negotiations. This combination of modest uncertainty in a favourable economic landscape provides good opportunity in seeking out our favoured combination of quality companies at attractive valuations.