During the month of January we have seen a strong recovery with the Fund (I-class) up 10.4% and the MSCI World Small-cap index up 9.9%. The Fund (I-class) outperformed its benchmark by 0.5% over the month. Substantially all the outperformance was driven by stock selection. During the volatility in 4Q18, the strategy corrected on an absolute basis but outperformed versus our benchmark. We are pleased that in the strong recovery in January the Fund also outperformed its benchmark. In 2019 we aim to further expand our strong track record based on bottom-up stock selection.

Three top contributing stocks during the month of January were First Solar (+19%), MRC Global (+27%) and Tenneco (+26%). First Solar rose 19% in January, helped by a strong performance of technology stocks and some positive broker comments partly based on the announcement of some large new solar farms in North America. MRC Global was up 27% in January as the stock rebounded from December lows. MRC, as a leading distributor of pipes, valves and fittings used in the oil & gas industry, sold off in December as the market worried the elevated oil price volatility would lead to depressed upstream capex spending in 2019. With the oil price recovery in January the market started to price in an, in our view, more realistic set of expectations, which caused the stock to recover. Tenneco’s share price was up 26% in January after a very weak end of the previous year. Tenneco is a leading supplier of automobile emission control and suspension systems. Automotive suppliers, including Tenneco, sold off during December on fears of a global recession and increased raw material costs due to trade tariffs. Market sentiment regarding both moderated in January, which caused the stock price of Tenneco to rebound.

Negative contributors in November were Sydbank (-3%), Strategic Education (-4%), and Hikma (-4%). We bought a position in Sydbank in November 2018 after the Q3 profit warning. In December the company lowered guidance again, mainly related to negative investment portfolio earnings, which we believe is less relevant for the structural earnings potential of the company. We believe Sydbank is attractively valued at 9x P/E, particularly now that earnings estimates have come down substantially. Strategic Education's stock was down 4% in January. There was no company specific newsflow. This is a defensive stock that did well in 2018 (+33% in USD terms), but the stock underperformed in the reversal of the market in January. Hikma’s shares declined 4% in January after a stellar performance in 2018. We do not see any company specific reason for the relative weak performance in January other than a broker downgrade.

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.