September, 2023
The Fund was essentially flat for the quarter posting returns of -0.25% (net). Areas of weakness for the Fund were primarily stock selection in Europe and an underweight to Emerging Markets, which outperformed during the period. Areas of strength for the Fund were North America and the UK on the back of strong performance in Industrials.
Portfolio Changes
During the quarter the Fund initiated two new positions and exited five. There was also one merger.
The Fund initiated a new position in a company that operates the leading investment platform in Europe, which connects financial institutions and investors. Whilst the business does not technically have a recurring subscription revenue, the revenue streams are very predictable and sticky by nature, leading to strong predictability of earnings. The company appears undervalued relative to a broad range of comparable businesses.
An additional new position for the Fund was a Japanese listed company that provides online recruitment solutions to Japanese companies seeking to recruit staff across many industries. The company’s flagship website is consistently ranked #1 in satisfaction surveys. This business plays nicely into Japan’s structurally tight labor market (due to demographics) as well as the constant war for talent amongst major employers.
A US retail clothing store was exited during the quarter. We commend the management team at the company on the successful turnaround of the flagship brand. Brand turnarounds are extremely challenging to execute on. We exited our position based on valuation combined with an increasingly challenging economic environment for the consumer.
A German listed trucking components business was also exited. The company is a well run business, however, recent earnings have been bolstered by supply constrained market for trucking components and high pricing for new trucks. We sold the position to zero on concerns around future earnings growth potential.
Three additional positions were exited during the period on valuation grounds to make way for new investments and manage the Fund cash position.
In addition, the merger of the Fund position in a leading player in spinal surgery, and a US medical device business closed during the quarter. As a result, our shares in the former were effectively swapped for shares in the latter. The board of US medical device business has subsequently announced an increase of their ongoing share buyback program.
We believe the combination of these two businesses, led by a well established and proven management team is a compelling investment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/205946920.pdfJune, 2023
The portfolio generated positive returns during the period of 1.76%, however underperformed the benchmark by 1.49%. The source of underperformance was primarily stock selection across Information Technology, Healthcare and Industrials. Geographically, Emerging Markets were source of absolute and relative outperformance, whilst Japan also contributed positively. The UK and Europe were areas of geographic weakness.
Portfolio Changes
The portfolio was quite active during the quarter, initiating positions in two new stocks, whilst selling five.
A diabetes care company (mentioned above) was added to the portfolio during the period. We believe investors are placing too many concerns on the short term and not appreciating the company’s product pipeline. The diabetes industry is large and growing and the company offers the premium ‘non-patch’ pump in the market, in our opinion.
A US flooring manufacturer was also added in Q2. The company sells almost all types of flooring (except wood) in both the US and Europe. We believe the concerns around a housing slowdown due to higher interest are overdone. Roughly half of the company’s revenues come from renovations, not new construction.
A US snacking business holding was sold after a nasty earnings miss and a lack of confidence in the new management team. The company previously performed well for the portfolio, and some profits were taken at higher levels. However, two poor capital allocation decisions have left the balance sheet in a precarious position at a time when inflation and demand are both very challenging to predict. The thesis had changed appreciably from when we first invested in the company, therefore it was time to divest.
A medical device manufacturer holding was sold during the month on valuation grounds.
A UK distribution business, which provides sourcing solutions across a diverse range of industries was sold off during the quarter. The company’s strong point is in automation and robotics, which has highly specialized distribution needs and regular maintenance revenues. The recent CEO change and concerns about an economic slowdown caused us to sell the shares off to an attractive entry level in our view.
A US industrial distributor holding was sold off during the quarter as a funding source for new purchases. The company is currently under takeout, trading at a very narrow discount to the agreed upon takeout price.
An Irish listed property developer holding was divested as the shares approached fair value.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/202691193.pdfMarch, 2023
The Fund had a positive quarter returning 6.56% and outperforming the benchmark by 0.89%. Geographically speaking, stock selection in the United States was a primary source of positive return. Conversely, stock selection in the UK detracted from the portfolio’s performance. On a sector basis, returns were driven by an underweight position in financials, positive stock selection in Real Estate, and strong stock performance in our overweight Industrials exposure. Our underweight to Information Technology was a negative contributor.
There were no new names purchased in the portfolio. We sold out of a US-listed industrial company on valuation grounds. We added and trimmed individual names on the basis of position size and/or valuation grounds. The bench of new names remains constructive and recent volatility is bringing investments closer to our buy prices across stocks in a range of sectors.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/PAXG_March2023_FactSheet.pdfJanuary, 2023
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/PAXG_January2023_Final.pdfDecember, 2022
The Fund had a robust absolute and relative quarter, delivering a 9.25% return, and outperforming the benchmark by 3.51%. On a sector basis, returns were spearheaded by key overweights to Health Care and Industrials given our strong stock selection. Geographically speaking, stock selection in North America was a primary source of positive return, while our overweight to and stock selection in the UK also added notably. Conversely, stock selection in Japan proved a detractor to the quarter’s performance.
Top Performers for the Quarter Included:
ChampionX (US) formulates specialty chemicals for the energy industry which allow for more efficient extraction of Oil and Gas. The company’s products reduce Oil and Gas operators’ water wastage and energy usage. ChampionX reported earnings during the quarter which demonstrated impressive pricing power and disciplined cost management, shares subsequently rallied. We believe ChampionX is well placed heading into 2023 as a vital supplier into the Oil and Gas market.
Bottom Performers for the Quarter Included:
YDUQS (Brazil) is the country’s largest postsecondary school education provider, offering a combination of on campus and distance education options. A few factors impacted the stock during the quarter. The company’s shares have come under pressure as investors are increasingly uncertain of the ramifications of the impending change of political parties in Brazil. Also, YDUQS’s floating rate debt will reduce earnings in 2023. In our view, it is likely that left facing President Lula will be favorable for the education industry. During his first term as president (2003 – 2010), through an emphasis on education, Lula focused on reducing poverty and improving literacy levels. Education continued to be a focus during his re-election campaign as it was integral to his plan to rebuild the economy in the face of crisis and to reduce poverty. We are currently reviewing our investment thesis on the company.
During the quarter, the Fund initiated a position in a global engineering and consulting business. We believe the business will achieve robust growth due to strong ESG and regulatory tailwinds. The Fund sold out of a specialized industrial manufacturer of lasers and motion control components which had been a solid holding and strong contributor to the portfolio over many years. The fund exited two Japanese positions - a dentistry supply business that reached our estimation of fair value and an ingredients and flavourings business that we believed had made some poor capital allocation decisions, calling into the question the quality of the company leadership. Lastly, the Fund exited its position in a Scandinavian specialty aluminum supplier on valuation grounds.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/PAXG_December2022_FactSheet_Commentary.pdfSeptember, 2022
The Fund returned -6.00% during the September quarter, versus our benchmark which returned -0.37% over the same period. Our stock selection in the Industrials, Consumer Staples and Health Care sectors in particular were areas of weakness. From a geographic perspective, our stock selection in the US and our overweight and stock selection in the UK were significant detractors in Q3.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/PAXG_September2022_FactSheet_Commentary.pdfJune, 2022
The Fund returned -9.64% during the June quarter, versus its benchmark which returned -7.58% over the same period. Our overweight in the US, particularly to Industrials, impacted performance negatively during the quarter. Stock picking in the UK was a net positive for the fund, though not sufficient to offset sector allocations.
Significant contributors to performance included:
Fibra Prologis (Mexico)
Fibra Prologis’ defensive attributes shone through in the quarter. The REIT owns logistics and other light industrial assets that have high utilization and majority dollarized rents, with many multinational tenants. Tailwinds include rising e-commerce penetration and US nearshoring activity. The company has also been active with asset acquisitions, driving additional value.
CDK Global Inc (US)
CDK provides a broad suite of software solutions to the automotive retail industry, primarily car dealerships in the US. We began purchasing CDK last in 2021 as the business was undervalued with a very sticky customer based delivering high predictability of revenue and cashflow. Early in the quarter CDK received a takeout offer from Brookfield Asset Management at roughly a 30% premium to our cost basis.
Renewi (UK)
Renewi is a waste management company listed in the UK with most of its operations in the Netherlands and Benelux regions. Renewi has a focus on recycling and sustainable waste management practices. During the quarter, Renewi released financial results showing revenue growth of 10% and flagged a potential dividend increase for 2023. We believe Renewi remains materially undervalued compared to listed sustainable waste management comps and appears ripe for a takeout in an industry which continues to see consolidation.
March, 2022
Our overweight positions in the UK and Europe were headwinds in the quarter. While stock selection, specifically in Emerging Markets, helped to offset our off-the-mark geographic positioning, the Fund trailed the benchmark for the quarter.
Significant contributors to performance included:
ChampionX Corporation (US)
ChampionX rose with global energy prices which accelerated sharply in the quarter. With Russia facing significant sanctions, oil & gas production will need to increase elsewhere and ChampionX is well positioned to support both onshore and offshore drilling and production.
Sendas Distribuidora (Brazil)
Brazilian cash & carry Sendas Distribuidora rose due to a recovering Brazilian economy, a recent acquisition that will accelerate store rollout plans, and a strengthening currency. We view the cash & carry business model as highly defensive due to its low-priced products and underpenetrated position in the Brazilian retail space. Within this attractive space Sendas holds a strong position in a near-duopoly market which we believe will allow the company to maintain margins via price increases even in an inflationary environment.
KAR Auction Services (US)
KAR Auction Services surprised the market by divesting its physical auction and logistics assets to Carvana for a very attractive price. After the divestiture closes, KAR will be an asset lite digital auction provider with a clean balance sheet. Long-term we expect the digital auction market to consolidate and believe this consolidation will further benefit KAR.
June, 2021
Our stock selection in the UK was the largest contributor to our performance, driven by a buyout offer for one of our larger holdings. Offsetting this benefit was both our underweight position and stock selection in Emerging Markets.
Significant contributors to performance included:
Abercrombie & Fitch (US) Clothing retailer Abercrombie & Fitch was again our strongest contributor this quarter. Abercrombie reported another strong earnings report and continues to benefit from global economic reopenings. After being ignored by the market as just another struggling mall-based retailer, Abercrombie has pivoted to a leading digital brand, resulting in both earnings growth and a substantial valuation re-rating.
Euronext (France) Pan-European exchange Euronext completed its acquisition of the Borsa Italiana Group in the quarter. This is a major strategic accomplishment for Euronext as the deal adds capabilities including a leading fixed income trading platform as well as a multi-asset clearing house. Euronext issued additional shares to finance the purchase and is now pursuing the substantial synergies available from the combination.
Equiniti Group (UK) Share registrar Equiniti Group received a buyout offer at nearly a 40% premium to where shares traded to start the quarter. Although there were previously rumors that private equity was interested in the business, Equiniti only publicly acknowledged the bid in late April. Shareholders will vote on the deal in July with a potential closing in Q3 2021.
File:December, 2020
Stock selection was a highlight in the quarter contributing positively in all geographies except for Europe. In addition, we benefitted from our overweight positions in North America and the UK as they led the market rally.
Significant contributors to performance included:
ON Semiconductor (US) Analog device manufacturer ON Semiconductor benefitted from the entry of activist investor Starboard Value and their public view that ON would be an attractive acquisition target. We believe ON appears well positioned to achieve its previously fleeting gross margin targets after working collaboratively with Starboard to appoint a new CEO and multiple new board members.
ChampionX Corporation (US) Upstream and midstream energy solutions provider ChampionX rose with the broader energy sector as news of the Covid-19 vaccine signaled future demand for travel, and therefore oil. ChampionX beat (admittedly low) earnings estimates, saw a number of analyst upgrades in the quarter, and continued to benefit from merger integration synergies, cross-selling, and market share gains.
CNO Financial (US) Life and supplemental health insurance provider CNO beat earnings estimates largely due to fewer health claims as Covid-19 shutdowns kept people at home. In addition, interest rates ticked up slightly in the quarter, benefitting CNO and the financial sector more broadly. CNO is well positioned, in our opinion, to benefit from rising interest rates due to its substantial float income from its insurance products.
Significant detractors from performance included:
Euronext (France) Euronext, a pan-European exchange operator, gave back some gains after being out top contributor in the prior quarter. The company announced an equity offering to finance its acquisition of Bolsa Italiana, pausing the rally in the company’s share price while the market awaits the capital raise. The deal is expected to close in mid-2021 and should prove accretive to earnings.
Rohto Pharmaceutical (Japan) Cosmetic and pharmaceutical manufacturer Rohto declined after missing revenue targets in November. While more cyclical businesses saw a substantial recovery in Q3, Rohto continued to be impacted by retail and office closures dampening demand for its eyecare and skincare products. Consternation about further government shutdowns in Japan continued to pressure shares through year end.
Eros STX (India) Eros STX continued to work through its merger and did not participate in the market rally. Key next steps for the business include a debt refinancing after which the business can begin to execute against its strategic plan to maximize the value of its content library and streaming subscriber base.
PORTFOLIO CHANGES
We exited Ascential (UK) to further concentrate the portfolio and improve overall liquidity. We added no new positions in the quarter. We rotated out of several Japanese names and reinvested these proceeds into names where we have more conviction.
ticker: ETL0365AU
release_schedule: Quarterly
commentary_block: Array
factsheet_url:
https://www.paradice.com/au/funds/global-small-cap/
Document Library -> FUND FACT -> Quarterly Factsheets
“Performance + Portfolio changes”
https://investmentcentre.moneymanagement.com.au/factsheets/mi/jayp/paradice-global-small-cap-a-unhedged
fund_features:
The Paradice Global Small Cap Fund is an actively managed, long only global equities product that invests in small caps. The Investment Manager believes that global small cap companies are the largest investment universe with the least amount of broker research coverage. there is an opportunity to find value no matter where we are in the economic cycle.
- Paradice believes that investment markets are inefficient as a result of excesses in collective market emotion, short-termism and too much market focus on profit and loss statements.
- The Fund is managed with a value and quality style bias, and has an emphasis on companies that exhibit four key characteristics – undervaluation, business quality, strong financial metrics and shareholder friendly management teams.
- The aim is to outperform the Benchmark over a three to five year period (after management costs and before tax).
manager_contact_details: Array
asset_class: Foreign Equity
asset_category: Equity World Mid/Small
peer_benchmark: Foreign Equity - World Mid/Small Index
broad_market_index: Developed -World Index
structure: Managed Fund