During the month of March the Fund (I-class) was up 1.0% and the MSCI World Small-cap index was up 0.8%. The Fund (I-class) booked an outperformance versus the benchmark of 0.2% over the month, mostly driven by stock selection in the sector financials. For the first quarter of 2019, the Fund (I-class) is up 15.5% slightly underperforming the benchmark that was up 15.8%. The first quarter performance of the MSCI World Small cap Value index was 13.7% versus 17.8% for the MSCI World Small cap Growth index. Given our value tilt and our significant Q4 2018 outperformance we think the portfolio showed a solid performance in the first quarter. Looking forward it is evident that valuations levels are somewhat higher than three months ago, however due to our large universe we are still able to find very attractive (new) investment opportunities.

Three top contributing stocks during the month of March were Luxfer (+34%), Abercombie & Fitch Co (+28%) and Mizrahi (+9%). The share price of Luxfer was up almost 34% in the month. Luxfer published its decision to terminate the acquisition of Neo, which was initially announced in December. The market responded positively to this deal being terminated, as the proposed acquisition was considered sizable and risky. Later in the month, the shares reacted positively after a brokerage research note suggesting that Luxfer would be one of the new candidates potentially to be included in the Russel 2000 index. Abercrombie & Fitch Co's stock was up 28% in March after reporting strong Q4 results, particularly in the light of the weaker results reported by many competitors. We are impressed by the performance of the new management team and our conviction has gone up almost every single quarter for the last 2 years. In our view the market does not discount a complete turnaround. We still like the risk/reward of the stock at the current levels. Mizrahi’s share price was up 9% in March after the company settled a US tax case with the US authorities on the 12th of March. The company already largely provisioned for the US$195m settlement, which ended up slightly lower than anticipated. The bank also announced solid Q4 results in the last week of March. Mizrahi trades at just 10x 2019 P/E which is attractive given the growth profile of the company. Following the settlement the company now also plans to resume paying dividend in 2019 after it refrained from paying dividend in the past 3 quarters.

Negative contributors in March were Tenneco (-35%), American Equity Investment Life (-13%), and Enersys (-10%). Tenneco’s stock price was down 35% in March after the company reported a soft Q4 and disappointing guidance for 2019. In addition, global light vehicle production during the quarter was also softer than expected, led by weakness in China and Europe. Tenneco’s soft 2019 guidance led to particular anxiety in the stock market because of Tenneco’s material financial leverage subsequent to the transformative acquisition of Federal-Mogul. In our view, the market prices in a very high risk of a severe slowdown in the company’s end-markets, are higher than we think realistic at this point. In addition, we believe Tenneco’s debt level, though high, is manageable. We have retained a below-average position in the stock and will follow-up with Tenneco’s management next week. American Equity Investment Life’s share price dropped 13% in March on the back of a lower 10-year Treasury yield which dropped from 2.74% to 2.42%. A lower yield makes it more difficult for the company to achieve a spread on it fixed index annuities products. We believe American Equity is attractively valued at just 1.0x book value. In 2018 the company was in preliminary discussion regarding a potential transaction. We believe the company remains an attractive take-over candidate for private equity or industry peers. We met with the company in March at the Raymond James conference, where we also met many of our other US portfolio holdings. Similar to the prior month, Enersys (-10%) was a detractor to the performance in March. EnerSys, a global leader in battery solutions for electric forklift trucks and reserve power for telecom operators, reported disappointing quarterly results. This disappointment was, in our view, mainly explained by telecom operators delaying their 5G investments. While we anticipate increased demand for data and speed in telecom and broadband applications, we believe these investments are needed and hence the current depressed spending level is merely a temporary effect.

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.