In July 2017, the Fund was down 1.6% versus a 1.1% decrease in the benchmark. During July the relative performance was weak in North America and particularly in the sectors consumer discretionary and industrials. Year-to-date the Fund showed a total return of 2.7% outperforming the benchmark by 2.3%, which is almost fully the result of stock selection effects rather than allocation to sectors or regions.

Three top contributing stocks during the month of July were First Solar (+20%), Sparebank 1 SR (+13%), and Western Forest (+6%). First Solar's share price was up 20% in July supported by strong Q2 results and higher FY2017 guidance. The company was able to realise higher profit on the sale of existing projects and sees an improving demand for solar panels. First Solar reported bookings of 1.5 GW (GigaWatt) in the second quarter which is 50% of the annual production capacity of the company. The mid-to-late-stage pipeline of order opportunities increased from 3GW in Q1 to 8GW in Q2. First Solar remains one of our core positions. The shares of Sparebank 1 SR increased 13% in July in line with its Norwegian peers. There was hardly any company specific news. Despite the strong recent share price performance Sparebank SR1 trades at only 10x next year's earnings while achieving a healthy 10% return on equity. The share price of Western Forest Products (WFP) increased by 6% in July. Last month we already described the US imposed trade actions against Canadian softwood producers, including WFP. These actions were not worse than expected. This month there were some rumors about a potential trade agreement between the US and Canada. In any case, helped by strong end market demand, all lumber producers were able to successfully pass on these duties to customers through sales price increases. We continue to believe that WFP is well positioned to benefit from continued strong end market demand, while recent operational improvements help to further drive profitability.

Negative contributors in July were Spirit Airlines (-27%), LHC Group (-18%), and Del Frisco Restaurant Group (-15%). The stock price of Spirit was down 27% over the month as pilot-related disruption during peak time for summer bookings negatively impacted Q3 guidance. Spirit is in negotiations with its pilots over a new contract and in May a number of pilots unlawfully put down work. We are optimistic Spirit will reach an agreement without much further disruption. In addition, legacy carriers started matching Spirit ticket pricing. In our view, this is unsustainable, as legacy carriers’ unit costs are significantly higher and thus they lose money on each ticket they sell at Spirit’s prices. We added to our position after the drop in the share price. The share price of LHC Group declined by 18% in July. LHCG is a US based home health and hospice provider. The main reason for the decline in the stock price was the proposed payment change for Medicare home health agencies for 2018 and 2019 as announced by the Centers for Medicare & Medicaid Services (CMS). Our investment case does not change materially due to these proposed changes. The company has a leadership position in its industry and in our view it will be able to absorb these changes. Del Frisco's stock was weak in July as the company reported Q2 results below expectations. The company also lowered its full year outlook somewhat. Our long term investment case did not change. In our view Del Frisco has a very strong franchise and we have high conviction in the new management team. We think the stock price does not reflect the quality of this asset. We recently saw several insiders at Del Frisco buying shares which we view as a sign of confidence. This remains one of our core holdings.

We reached our 3-year track record on 8 July 2017. The annualised return (after costs) since inception is 14.4% compared to 12.2% for the MSCI Small Cap Index (8 July 2014 to 31 July 2017). We are pleased that we have been able to add value to the portfolios of our clients in the first 3 years of the fund. The assets under management have grown from EUR6m at the start to EUR151m by the end of July 2017. We expect to see continued interest from new investors in our fund particularly now we have reached a 3-year track record, which is a minimum requirement for many institutional investors. We would like to thank the investors in our fund for the trust and support we received in the last 3 years.

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 70-100 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.