In March the Fund (I-class) was down 0.3%, outperforming the benchmark which was down 0.8%. For the first quarter of 2018, the Fund (I-class) is down 3.6% vs the benchmark down 2.9%. In the first quarter the Fund's value bias was a headwind. The first quarter performance of the MSCI World Small-cap Value index was -4.7% versus -1.1% for the MSCI World Small-cap Growth index.

Three top contributing stocks during the month of March were Hikma (+38%), Delek US (+19%) and First Solar (+12%). Hikma Pharmaceuticals was up 38% in March after the company reported FY 2017 results that were slightly ahead of expectations and a conservative FY 2018 outlook. We bought a small position in Hikma in November 2017 after the stock dropped more than 40% in 2017 driven by industry price pressure in pharmaceuticals. Compared to its peers Hikma has a strong balance sheet and a more diversified portfolio. The Generics division, which is suffering most by price pressure, is currently only marginally profitable, while the Injectables and Branded divisions have healthy margins. The Generics industry has faced 18 months of double digit price pressure. In the FY 2018 guidance the company assumes another year of double digit price pressure for Generics. These low expectations for FY 2018 may well be the bottom in the pricing cycle and in analyst expectations, which benefitted the share price in March. Delek US, a US refinery operator, was up 19% in March. The company is executing well on the integration of Alon USA, a competing refining company Delek US acquired in July ’17. The company is generating significant cash by selling non-core assets that came with the acquisition, and has been able to attractively refinance expensive Alon USA debt. In addition to this, the cost of blending renewable fuels with gasoline has declined materially, as the US environmental protection agency (EPA) has granted waivers on blending requirements for numerous US refineries. First Solar was up 12% in March, mainly helped by positive analyst reports.

Negative contributors in March were Otello (-22%), Del Frisco (-9%) and Tech Data (-18%). Otello Corp's stock was down 22% in March. We are not aware of any relevant company specific newsflow in the month of March. The company has two main assets. One of these assets is Adcolony which is an online ad platform. The Facebook concerns potentially had an impact on investor sentiment on Adcolony. All in all our view did not change. We think Otello is significantly undervalued, but it could take some time for the stock to play out. The share price of Del Frisco's Restaurant Group declined by 9% in March. The Q1 2018 results are impacted by some one-off items like severe weather. The longer term growth strategy of Del Frisco remains on track. Tech Data reported Q4 results in line with expectations but the guidance for Q1 was disappointing. The company called out somewhat higher IT integration costs for the Avnet TS acquisition. Increased competition is another factor, similar to management comments from late summer 2017. Execution from here is key. The stock trades at an attractive 8% normalized FCF yield with the majority of the cost synergies still ahead.

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.