In July the Fund (I-class) was up 2.0%, versus a 1.0% increase in the MSCI World small-cap index. Year-to-date, the Fund (I-class) is up 8.0% versus the benchmark return of 6.7%. In the past month the Fund was named 'Fund of the week' by Morningstar and on the first Saturday of August the Fund was mentioned as 'Fonds in Beeld' in the Dutch newspaper 'de Telegraaf’.

Three top contributing stocks during the month of July were Spirit Airlines (+19%), Fujitec (+16%) and Trinity (+11%). Spirit Airlines (+19%), the largest ultra-low-cost airline in the United States, posted better than expected Q2 results and communicated a positive outlook for Q3. In addition, investor sentiment regarding US airlines improved as the industry cut domestic capacity growth plans in response to increased jet fuel prices. This is expected to lead to a better supply / demand balance, which should allow airlines to pass-through some fuel price inflation to consumers. Spirit particularly benefits from its industry-leading cost base in this environment, in our view. The share price of Fujitec was up 16% without any specific company news, reversing the weakness in the shares that we had witnessed during the first half of the year. Trinity (+11%), the largest manufacturer of freight railcars in North America with its own railcar lease fleet, raised its full-year expectations for the 4th time in a row after solid quarterly results. Trinity is working towards splitting the business by the end of the year. We believe this would further unlock value, as we believe the shares are currently undervalued.

Negative contributors in July were Del Frisco (-32%), Western Forest (-9%), and Otello (-10%). Del Frisco Restaurant Group shares were down 32% in July on concerns the company has too much leverage on its balance sheet after the recent acquisition of Barteca which was fully financed with debt. We trimmed our position after this deal was announced as we immediately had concerns on the leverage. However, we had not expected this would become an issue in 2018. On 2 August Del Frisco placed new shares which puts the balance sheet in a much better position. We participated in this offering which was placed at US$8 per share. The shares of Western Forest Products, a Canadian producer of lumber, declined by 9% in the month. The whole lumber sector in Canada, which is an important supplier to the US construction and renovation market, has been under pressure because of uncertainty on how trade disputes in the US may impact demand and pricing going forward. Otello was down 10% in July. We are not aware of any stock specific newsflow during the month. The company is set to report Q2 results on August 24.

The Fund invests world-wide in smaller companies (small-caps). One attractive feature of small-caps is that they are generally monitored by a small number of analysts, which leaves plenty of opportunity to add value as active investors. When looking for new investment opportunities, screening is applied to reduce the investment universe to a manageable size of 500 companies. We screen for companies that are of above-average quality and that are attractively valued. Extensive fundamental analysis is done on both existing portfolio companies and new portfolio candidates. This includes analysis of the company’s public filings (like annual reports) and comprehensive dialogues with the management teams of companies that we invest in. For each stock we base our investment decision on an extensive investment case, which is supported by a proprietary financial model. ESG topics (Environmental, Social and Governance) are fully integrated in our investment process. The result is a well-diversified portfolio of 60-90 companies spread across sectors and regions. Many portfolio companies have leading positions in the niche markets in which they operate. The companies in the portfolio typically have robust balance sheets and high returns on capital employed, which indicates that these companies are structurally capable of increasing shareholder value via their operations. The portfolio has a more attractive price earnings ratio versus the benchmark.