In August the Fund (I-class) was up 1.9%, versus a 2.8% increase in the MSCI World small-cap index. Year-to-date, the Fund (I-class) is up 10.0% vs the benchmark return of 9.6%. Despite some value style headwinds in August and year-to-date we managed to outperform the benchmark year-to-date. The MSCI World small-cap value index is up 5.7% year-to-date. On 26 September we will host a round table on small-cap investing in London. The seminar will provide a 360 degree look at the asset class with external speakers from MSCI Research and the CEO of Luxfer, one of our portfolio holdings. For more details please contact guy.beech@kempen.co.uk.

Three top contributing stocks during the month of August were Luxfer (+24%), Dialog (+36%) and LHC Group (+15%). Luxfer is a US listed industrial holding company. Its share price increased by 24% in August; year-to-date the share price is up 52%. The new CEO, who joined mid last year, announced a strategic plan earlier this year and identified significant cost improvement opportunities. As end markets are recovering, Luxfer reported solid Q2 results and again raised its full-year guidance. The share price of Dialog Semiconductor was up 36% in August. Dialog is one of the more recent additions to our portfolio, we bought the initial position late June. The company decided to terminate acquisition discussions with Synaptics and reported a strong quarter. We still think the market is discounting an overly bearish scenario for the company's relationship with Apple. LHC Group (+15%), a US home health care provider continued its strong performance in August after posting a strong set of results on the 1st of August. Healthcare was the strongest segment in the MSCI World small-cap index this month (+8.3%). LHC Group's share price is up more than 60% year-to-date.

Negative contributors in August were Varex (-17%), DeNA (-8%), and US Silica (-21%). Varex Imaging was down -17% in August on a soft 3rd fiscal quarter and a lowered full year outlook. Varex is the largest independent manufacturer of x-ray sources and digital x-ray detectors. Uncertainty regarding the impact of tariffs slowed orders. In addition, gross margins disappointed due to manufacturing problems at an older facility that came as part of an acquisition. Varex moved forward the planned closure of this facility, and margins should improve subsequently. Early September, we met with Varex management at their Salt Lake City headquarters. We remain confident on Varex long-term growth prospects. The shares of DeNA were down 8% in August. Game revenues were weak in Q1, but the company had a solid explanation for the weakness and we expect a strong recovery mainly based on the pipeline of new games. The downside should be well protected by DeNA's overly strong balance sheet. US Silica was down -21% in August on news put out by a competitor that there is oversupply of Northern White Sands (NWS, which US Silica also provides) in the Permian Basin. As a result, this particular competitor reduced pricing on its contracted sand volumes by as much as 10%. A main difference with US Silica is that the latter’s contracts are on a fixed price base, and the company has not renegotiated anything down. In addition, US Silica has a larger regional and in-basin presence. At the current stock price, we believe the market assigns very little value to the oil & gas sand business, with the industrial and logistics divisions making up substantially all the current market value.

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.