Portfolio Manager comment Coeli Global Small Cap Select August 2022

During August, Coeli Global Small Cap Select’s NAV decreased by -1,93%, coming in 0,73 percentage points short of our benchmark index. The cause of the slightly weaker performance can be found in the stock market’s ongoing unease about inflation and how this affects consumers.

The three stocks that performed most strongly during the month were Semler Scientific, Ameresco, and Qualys. And the three with the most negative returns were Truecaller, Sonos, and Yeti.

Solid reports – in some cases lifting the share price by double digits on reporting day – put the US-based Semler Scientific, Ameresco, and Qualys at the top of the tree. The weak performances by Sonos and Yeti came about because both sell their products to consumers. The turbulent economic environment has, in part, begun to hurt consumption.

Key market events and trends (what has influenced performance most?)

With more than 60 quarterly reports and presentations under our belt this summer, we can conclude that the views of companies and the stock market are not aligned. Companies are positive, seeing sales rolling on without a blip on the radar, and they are looking to grow through new acquisition opportunities. Very few of the companies that reported are experiencing major issues. Those who reported the weakest results sell directly to consumers. Those selling B2B, on the other hand, delivered solid reports with rising sales and robust order books. Manufacturing companies had experienced increasing materials costs but now saw a slowdown in these price increases.

Comparing what companies stated during reporting season with the negative macro picture offered by market rates, consumer confidence and purchasing managers’ indices, etc, we can clearly see a difference. We believe companies are taking a sunnier view of the economy than the macro economists are portraying.

The American interest rate market has two rather large interest rate increases during the summer behind it. Although Jerome Powell was reasonably hawkish (positive on raising rates) in his speech following the meeting at Jackson Hole, we believe the central banks will be cautious on lifting interest rates. Raising them too high, too fast would run the risk of “killing” the economy. We as consumers are in a tough spot, with expensive interest rates on loans, higher fuel costs, and other price increases that affect our disposable income. Jerome Powell appears determined to bring inflation down to the Fed’s goal of 2%.

Portfolio changes

During august, we sold a real estate company and a construction firm as the rising interest rates put further pressure on real estate and new construction. In their place, we bought two excellent companies with exposure to domestic pets (dogs and cats), both offering more secular growth, which should work better in an environment with higher interest rates.

The fund’s positioning – our market expectations

Coeli Global Small Cap Select has many enticing holdings and is now positioned for an autumn that benefits companies with exposure to infrastructure investments and that move production from low-cost countries to Europe and Sweden. We maintain our overweight in B2B companies, with less towards those selling to consumers.

News

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