In April, the NAV of the Fund (I-class) decreased by 2.3% (net of fees) while the MSCI Europe Small-cap index decreased by 1.9%.

As the battle in the Eastern and Southern parts of Ukraine continued, the month of April ended without prospect of a ceasefire. Meanwhile a growing number of COVID-19 infections in China in combination with the zero tolerance policy of the local government means that lockdown measures in China last much longer than originally expected. This increases the risk that Western economies will again face a period of additional uncertainty and delays in the logistic chains. Despite this, the majority of reported results of listed companies for the first quarter meet or exceed expectations. This demonstrates that many companies have used the COVID-19 period to strengthen the internal organization, reduce operating costs and balance risks better (suppliers, internal production versus purchasing) and are therefore less vulnerable than before. For many companies, the greatest short-term challenge is the availability and cost of labor. As a result, investments in further automation/mechanization of processes will likely remain at a high level.

Individuals and investors alike learned a lot in the last few years and will continue to do so in the future. Not too long ago, exit polls seemed incapable of predicting election outcomes in the UK and the US. Then we learned more about virology and now we are all learning more about Russian politics and the effects of sanctions. If there is one element that has been constant in the past and will remain so going forward, it is that the future is full of surprises. With that in mind, we can only stress that your and our interests are aligned and that we will continue to execute our diligent, fundamental process, make portfolio adjustments if and when required with the dual goal of generating long-term investment alpha and support sustainable development. In the near-term, it remains difficult to predict the further development of the current tragedy and its economic consequences. However, the direct exposure to Russia and Ukraine is immaterial at the portfolio level. Nevertheless, persistent shortages of components, (temporary) disruptions in supply chains and further rising raw material and energy prices will have an impact. However, due to the experience already gained by companies during the COVID-19 pandemic and their mostly strong position in the value chain, we expect the financial impact on the companies in the portfolio to remain manageable. As always, we remain in close contact with the management teams of the companies we invest in. We continue to see good long-term potential for our portfolio holdings but remain focused on near term risks and balance sheet strength.

During the month neither new names were added nor entirely sold.

In April Bawag, Huhtamaki and Tate & Lyle delivered the strongest contribution to the portfolio. Bawag (+6.3%) benefited from the combination of a further rise in interest rates, a strong set of 1Q22 results and confirmation that the company’s (direct) exposure to Russia/Ukraine is negligible. Huhtamaki (+15.9%) reported strong Q122 results that reflected a broad-based recovery in foodservice markets as well as the organization’s strong agility that has ensured early and aggressive price increases in order to defend profit margins. In April, Tate&Lyle (+6.7%) shares were strong leading up to the moment in early May when it will pay a GBP 500m super dividend as well as implement a reverse stock split. Also, the company reiterated that it is seeing continued double digit revenue growth for its core food solutions business.

The companies that delivered the weakest contribution to the portfolio in April were Befesa, BESI and Dustin. Befesa shares declined by 17% during the month, giving back the gains of March. Befesa reported quarterly results just mildly below expectations due to somewhat higher operational expenses. We still believe Befesa’s management team is executing strongly on its strategic priorities, which creates long-term opportunities. Besi’s (-24.6%) first quarter results were as expected, but the YoY order intake fell for the first time since 3Q19 and fuels speculation that this may mark the beginning of the end of the semiconductor cycle. Hybrid bonding continues to perform well, but may not offset a cyclical downturn in the core business. Dustin (-12.7%) reported 12% organic sales growth for 1Q22 which was stronger than expected. However, profitability was lower due to a combination of above average COVID-19 related sickness leave and an adverse sales mix. Despite the slow start of the year the company anticipates healthy growth and suggests the current headwind is temporary.

ESG commentary
In April we saw this year's proxy season fully kick off in Europe. Just as in previous years, increasing attention of investors is placed on corporate governance themes such as remuneration, board structure, including gender diversity, independence of directors and overboarding, as well as audit and risk oversight. As an active shareholder we foster engagements with many portfolio companies ahead of the their respective shareholder meeting to share our feedback and inform management in case we will vote against proposed agenda items.

The Fund has a CO2 revenue intensity that continues to be significantly below the benchmark. Furthermore, the portfolio is on course towards achieving its net-zero emissions climate objective aligned with the Paris Agreement, Dutch Klimaatakkoord and the EU Climate Transition Benchmark in line with the 1.5°C scenarios from the IPCC in 2050 and our intermediate target set for 2025. While details of the EU SFDR regulation are still developing, the Fund currently falls in the article 9 category of this regulation due to its net-zero emission climate objective. This classification could change in the future. Furthermore, the Fund’s strict exclusion criteria for controversial activities, ESG integration in the investment process and active ownership including engagement result in a better Morningstar Sustainability Rating than 90% of its peers.