Portfolio Manager comment Coeli Global Small Cap Select September 2023

The Coeli Global Small Cap Select’s performance in September was -4.76%, which was 2.30 percentage points worse than our benchmark index. The equity markets are once again anxious about the development of market interest rates, which has led to share price declines.

The strongest performers in the month were Pro Medicus, Munters, and Fortnox. Those showing the weakest performance in September were Argan, Eurogroup Laminations, and Medpace.

Australia’s Pro Medicus was the month’s best performer, having taken home a large order from a US hospital chain. The day this large new order was announced, the share price shot up 12%. No specific events prompted the share price developments of the three worst performers of the month. It can largely be explained by the general decline in small cap stocks. Reinforcing this, we have recently had discussions with Argan and Eurogroup Lamination, both of which have confirmed decent demand for their products.

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

During the month, the markets were most affected by the new highs in interest rates, stemming from, among other things, the Fed’s announced further increase in the key interest rate to curb inflation. The rise in market interest rates means more and more investors demanding interest-bearing assets. Increased interest in fixed income assets leads to a share of the capital moving into these markets from the equity markets. Part of the drop we have seen in the equity markets has been driven by this movement. The asset case most affected is small caps, while larger companies have fared somewhat better. We also saw rising oil prices during September, pulling oil company share prices up with them. Coeli Global does not invest in oil or gas companies for sustainability reasons, meaning we have lost relatively speaking in returns versus energy companies. We also believe inflation is on its way down in almost all countries, which is evidence that the central banks’ tough monetary policies are taking effect. We hope the central banks act carefully, however, with new increases, as consumers are already struggling with interest payments.

Portfolio changes

During the month, we sold two holdings in our small cap fund. The first was Italy’s El.En, where there doesn’t seem to be a quick solution to the issues in the Chinese market. The second was Sweden’s Hexatronic, as the company issued a profit warning, citing negative growth for the second half of 2023. We believe growth can be found in the broadband expansion in the US, the UK, and Germany, but given the current concerns surrounding the company, we have chosen to take a breather.

The fund’s positioning—our market expectations

Owing to the decline in the fund’s NAV during the month, we can now invest in Coeli Global Small Cap Select at a lower valuation than the previous month. Thanks to our solid portfolio, with many entrepreneurially driven Champions, there is a floor (lowest level) for how cheap an equity portfolio can be before investors return to it. Right now, our small cap fund is valued at around 18x profits for 2024 and at profit growth of almost 17%. We consider this appealing.