In May the Fund (I-class) was up 6.2%, more or less in line with the benchmark return of 6.3%. Year-to-date, the Fund (I-class) is up 7.2% vs the benchmark return of up 6.0%.

Three top contributing stocks during the month of May were Luxfer (+37%), Trinity (+14%) and Enersys Group (+18%). Luxfer was up 37% in May. Luxfer is a US listed industrial holding company. The new CEO, who joined mid last year, identified significant cost improvement opportunities. Luxfer raised its full-year guidance accordingly, also thanks to a recovery in end markets. Moreover, we believe the strong share price performance was driven by the expectation that Luxfer will be included in a US small-cap equity index. Trinity, the largest manufacturer of freight railcars in North America with its own railcar lease fleet, raised its full-year expectations after solid quarterly results. We considered the previous guidance too conservative. 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. EnerSys, a US producer of batteries for reserve power and electric forklift trucks, reported strong quarterly results. Last year earnings were adversely impacted by a sudden increase in inputs costs. As EnerSys can only pass on these higher input prices to customers with a time lag, the company now benefits from better pricing.

Negative contributors in May were AA (-8%), Pendragon (-10%), and Del Frisco’s (-15%). AA declined by 8%, after the share price increased by 70% in the previous month. Still, year-to-date the share price is down 27%. AA’s strategy update, presented by the new CEO earlier this year, implied higher than expected investments, particularly in IT. While we believe this makes sense from a long-term point of view, short-term earnings are adversely impacted. As long-term investors we are able and willing to look beyond the short-term. Pendragon was down 10% in the month of May after increasing 25% in April. The company gave a trading update early May. In the month of March Pendragon had difficulties to retain sufficient used vehicle stock which hurt earnings. We expect a recovery in Q2 and the stock remains attractively valued. Del Frisco's Restaurant Group's share price declined 15% in May after it reported Q1 results on May 7th. Simultaneously the management announced the intention to acquire Barteca Restaurant Group. Our impression of Barteca is very positive as we view it as a high quality asset. The restaurants are very profitable and the growth prospects are abundant. Del Frisco uses debt to finance this acquisition and the gearing of Del Frisco will increase significantly due to this acquisition. The latter made us decide to lower our portfolio weight as not only the return profile of the stock, but also the risk profile has increased.

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.