During the month of February the recovery continued with the Fund (I-class) up 3.7% and the MSCI World Small-cap index up 4.5%. Year-to-date the Fund is up 14.5%. After four consecutive months of outperformance, the Fund (I-class) underperformed its benchmark by 0.8% over the month. Substantially all the underperformance was driven by stock selection in the sectors IT and industrials. February was another month where value underperformed growth as a style. Following market volatility in 4Q18, both the equity market and the Kempen global small-cap strategy sharply corrected in January and February of 2019. Year-to-date, the strategy is up 14.5%, just underperforming the benchmark. Taking a longer-term view, over the last three years the strategy is well ahead of the benchmark (more than 400bps after-cost). In 2019 we aim to further expand our strong track record based on bottom-up stock selection. Given today's valuation levels, we will continue to carefully monitor market and portfolio developments. In addition, we intend to where possible make use of volatility during the earnings season.

Three top contributing stocks during the month of February were Dairy Crest Group (+33%), Sleep Number Corporation (+22%) and Strategic Education (+21%). Dairy Crest Group's stock was up 33% in February as the Canadian company Saputo made a cash bid for the company which is supported by the board of Dairy Crest. The board did not follow an official process and did not contact potential other bidders. Additionally, none of the key shareholders have yet agreed on the deal, nor is there a breakup fee. The bid was slightly below our target price and we see potential for a higher take out price (another company could launch a competing bid or Saputo could sweeten the deal). For now we stick to our position. Sleep Number Corporation's stock was up 22% in February after reporting strong Q4 results. We took some profits after the run-up in the stock price, but still like the positioning of the company. Strategic Education's stock was up 21% in February, largely due to competing firms reporting strong results. The company itself reported strong results on March 1st.

Negative contributors in February were Western Forest Products (-8%), EnerSys (-12%), and DeNA (-12%). The share price of Western Forest Products declined by 8% in February. Western Forest Products is a specialized lumber producer, selling predominantly into the North American market. Poor weather conditions in North America resulted in weak industry statistics on newbuilt and renovations for the start of the year. This in combination with more structural concerns about the US housing market, did not help share price performance. We believe the current inventory levels throughout the value chain are low, which should result in a recovery of the average selling prices of lumber going into the spring season. Moreover, Western Forest is well positioned with its niche lumber business and furthermore benefits from upgrade programs to improve production efficiency going forward. EnerSys (-12%), 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. We added to our position in response to the share price weakness. DeNA’s shares declined 12% in February as the company came out with a profit warning. The prospects for next fiscal year are bright however and the stock trades significantly below intrinsic value in our view.

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.