BMC Global Small Cap Select July 2026

The strongest contributors to the fund during the month were Brink's, IDT, and Climb Global, while the weakest were Covenant Logistics, Kandenko, and Everus.

As usual, July proved an intensive month for quarterly reports, with many of the fund's companies releasing half-year figures. Overall, these reports were in line with or better than expectations, although their reception was lukewarm. This is likely because the equity markets' actual expectations were a little above analyst estimates after the massive share price increases of the second quarter.

The month's best contributor, Brink's, which we wrote about in April, has issued neither a report nor any news of value. It was sooner a question of a shift in sentiment around the share. The share had previously been weak after Brink's revealed its intention to acquire NCR Atleos. Earlier in the summer, this transformative acquisition was approved both by the shareholders of NCR Atleos and the US equivalent of the competition authority, and we have also seen a number of other owners of NCR Atleos buy, like us, into Brink's.

The weakest contributor in July, Covenant Logistics, which we wrote about in May, reported poor figures and has proven the fund's greatest disappointment so far this reporting season. Unlike its sector peers, the company has failed to capitalize on the powerful increase in freight rates in the US. Meanwhile, a number of costs proved higher than expected, taking the company's profits down y/y.

Arcadis, our new holding, was the target of acquisition interest during the month. We took a position in Arcadis early in the month at a share price of around EUR 34–35. A couple of weeks later, a bid of more than EUR 50 per share arrived from Canadian peer WSP. At the end of the month, Arcadis declined the bid, stating that it did not reflect the company's underlying value. Management believes the company's value will be all the more prominent following the results of the ongoing restructuring plans. This does not preclude WSP from returning with a higher bid. There have also been reports of one or more private equity firms showing interest in Arcadis.

Key market events and trends

At first glance, July appeared to be a calm month, with the global equity market (MSCI World in EUR) dropping back by 0.6%. But this hides one of the year's most powerful sector rotations. Semiconductors fell by 20%, the South Korean equity market lost 30%, and Tesla was markedly down, while the US telecom sector rose by 15%, energy climbed up 8%, the finance sector saw a 7% rise, and everyday pharma was up 5%.

This correction centered on AI-related topics. The greatest drop was seen in the AI and semiconductor spaces, plus the South Korean market, with its extensive exposure to memory chips. These have all been extremely popular, with increases of around 70% during the first half of the year. On top of this, we saw profit-taking, a more austere Fed under new chair Kevin Warsh, and a wave of liquidation of leveraged positions, including the Situational Awareness Fund being compelled to sell assets to meet the margin call. The underlying demand held firm, however, and reports from semiconductor companies and hyperscalers showed continued solid growth with rising revenue and profits. Overall, this appears to have been a healthy valuation correction of a structurally intact trend, rather than a sign of weakening fundamentals.

Estimates have been revised up—and our forecasts likewise. At the start of the year, we had forecast a total return of 10–15% for 2026. We raised this to around 15% after the convincing first quarter reports. And now—despite July's rotation—we see scope to lift it again, this time to 15–20%, given the second quarter results and updated valuations in play. This year's returns will be driven entirely by profit growth. The latest increases in long-term bond yields could pose a risk to keep an eye on, however, as if US 10-year yields surpass 5%, it could put pressure on share prices in general.

What do we anticipate for the fall? We expect the second half of the year to remain variable, the tone set by sector rotation rather than a broad-based general pickup. The underweight sectors—groceries, healthcare, telecom, and finance—seem to hold the best opportunities to continue making up lost ground, especially as many active investors are still underweight in these spaces. We would consider possible ongoing weakness in semiconductors as a buying opportunity, given the solid profit development expected there in 2026 and 2027.

Portfolio changes

During July, we added two new holdings (Arcadis and Open House) and sold off two smaller holdings (Apotea and Nagarro). Apotea is a particularly well-run company, but given its current valuation, we see better return potential elsewhere. We sold off Nagarro, which we wrote about in our previous newsletter, following a takeover bid. Below, we offer short descriptions of our two new holdings.

Arcadis: A global engineering consultancy exposed to structural growth areas such as water, energy, infrastructure, and data centers. The company is undertaking an operational turnaround, with the new management focused on growing the utilization rate, decreasing admin costs, and improving the group's incentive structure. It is also considering divesting poorly performing areas of the business. The company's valuation has declined to low levels with margins under pressure, but management's action plan is expected is spur growth and improve margins.

Open House Group: A Japanese real estate company focused on newly constructed detached houses and apartments in metropolitan areas. The company benefits from robust demand for detached houses, and its capital-light business model and solid balance sheet allow for sizable share buybacks at an appealing valuation. Owing to soaring commodity prices at the start of the conflict in the Middle East, the company made provision in its expectations for much higher input prices. Since then, prices for its key inputs have stabilized at lower levels, leading to upside versus expectations.

The fund's positioning

The fund now comprises 36 companies exposed to a range of sectors and geographies, with companies chosen on their own merits. We believe a concentrated but also diversified, actively managed small cap fund focused on stockpicking has all the prerequisites to deliver great returns to its unitholders over time.

*MSCI ACWI Small Cap NTR $ in EUR