Review of 2016

The strong performance over 2016 - 10 percent higher than the benchmark – can largely be attributed to selecting the right stocks within regions and sectors, and not so much simply selecting specific regions or sectors. Moreover, the fund outperformed the benchmark in each major region (see table). This is in line with our philosophy: we see ourselves as bottom-up stock pickers. Our portfolio is well diversified across sectors and regions and we take no specific top-down decisions on large overweights in specific regions or sectors versus the benchmark. We believe that our equity selection based on fundamental analysis can add long-term value.


Strict criteria

Our investment process is based on a couple of the principles that are largely described in ‘The Intelligent Investor’ by Benjamin Graham from 1949. The first principle of this founding father of value investment is to view equities as instruments that provide ownership of a company, rather than a speculative instrument. This is the attitude we adopt in talks with the management of the companies in which we invest. Next, we assess the long-term quality of the company. Finally, we examine whether there is a safety margin between the company’s market price and the value we attribute based on our valuation model. We apply these selection criteria very strictly and only invest in the most appropriate companies in our global investment universe.

Thorough analysis 

Our investment philosophy requires a thorough analysis of each company, a disciplined process and an independent mode of thought. In 2016, we conducted 273 interviews with the management teams of the companies in which we invest. We attended several conferences and visited companies in North America and Europe and twice flew to Japan to talk to companies in our portfolio. The advantage of investing in small caps is that these companies are easily accessible, enabling us to get to know and understand them well. We focus on the long term, leading us occasionally to invest in companies in which results are being squeezed in the short term, but which have excellent long-term prospects. No fewer than eight of these strategically well-positioned companies in our portfolio were the subject of takeover bids in 2016, which confirms the underlying attractive long-term valuation of our portfolio. 

First place in the Morningstar peer group 

Over 2016, the Kempen (Lux) Global Small-cap Fund earned the highest return in its Morningstar peer group of 60 global small-cap funds. This number one ranking surprised us due to our wide diversification across sectors and regions. Statistically, there is minimal chance of a well-diversified portfolio like ours heading or bringing up the rear in such rankings on a one-year basis. This can partly be explained by the fact that many investment funds do not focus on ‘value’, a style that performed well in 2016. The peer group of 60 small-cap investment funds only contains seven that are classed as ‘value’ by Morningstar, while 23 funds come under the ‘growth’ class and 30 the ‘mixed’ class. Our long-term value investment style therefore sets us apart from many other global small-cap investment funds.

Milestone: three-year track record in 2017


The fund will celebrate its third birthday in July 2017. Many institutional investors demand a three-year track record before they will even consider investing in a new fund. We have seen an increase in interest over the past few months, based on the process we have developed and the performance so far. We expect interest in our fund to grow further throughout this year. Another criterion demanded by institutional investors is a minimum fund size. In 2016, the fund’s assets under management grew from eleven million euros to over 50 million, bringing us to the notice of more investors. We are particularly grateful to those investors who participated in the fund in the first couple of years. As a team we are determined to continue managing the fund to the best of our ability in 2017. We monitor existing investments carefully and are constantly on the lookout for new, attractive investment opportunities. We will continue to report on the main developments in the fund in this Quarterly and the monthly reports, as well as providing more background on our modus operandi and the companies in which we invest.

[1] After fees, BN share class. The value of investments may fluctuate. Past performances provide no guarantee for the future.