BMC Global Small Cap Select June 2024

The stocks that contributed the most during the month were Axcelis Technologies, Enghouse System, and VBG Group. Those that saw the weakest performance in Juen were YouGov, IDT Corporation, and Exclusive Networks.

Axcelis Technologies saw a solid month as US investors have taken a more positive stance on smaller semiconductor companies. The largest negative return was from YouGov, which issued a profit warning in the last week of June. This was spurred by weaker turnover and that costs have risen too much, dragging down the company's profits more than consensus anticipated.

During June, a majority of the analyst team was in the US for, among other things, company visits in Texas and for the William Blair equity conference in Chicago. During these travels, we met both exciting new companies and some already in our portfolio for the visits we consider a key part of our investment process. On our website, you can find a blog post (in Swedish) about our trip to Chicago, along with a report on Fortnox's capital markets day. You can find our blog posts here.

We would also like to remind you that we have changed name to Brock Milton Capital. Our global small cap fund has also changed name to BMC Global Small Cap Select.

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

On June 6, it was time for the ECB to cut interest rates by 0.25 percentage points. It was the central bank's first cut in several years and proved a welcome boost for the equity markets. Now we await the US's Fed to make its first cuts. Unfortunately, the US job market has proven incredibly robust, making it difficult for inflation to come down to really low levels. Fed boss Jerome Powell recently stated his intention for inflation to have come down towards about 2% before the Fed will make its first cuts.

Another trend affecting the stock markets is AI and all the associated tech investments. And yet another is the sale of electric vehicles. The EU is currently debating the level of tariffs on Chinese electric cars to incentivize European car manufacturing. China is skilled at making electric vehicles and is ahead of its European counterparts in both price and performance. This is one of the reasons why European vehicle manufacturers have such low valuations.

Portfolio changes

During June, we bought three new companies and sold two holdings to increase the opportunities for good returns to you unitholders. We bought France's Pluxee and the US's Rev Group and Wabash. Pluxee is a spin-off from Sodexo, offering staff different employee benefits, such as tax-advantaged lunch vouchers. It is a European Champion that has demonstrated robust historical growth. Rev Group is a Special Situations company that manufactures fire trucks and ambulances. Wabash is another Special Situations company, making transport vehicles for major US e-retailers, among others. 

We sold Australia's Pro Medicus and the US's Medpace during June. Both were good quality companies with decent returns to the fund, but as both now have market caps in excess of USD 6bn, they have grown too large for our small cap fund.   

The fund's positioning—our market expectations

Details from the central banks regarding future rate cuts and companies' profit developments will drive the performance of our global small cap fund. As an asset class, small caps benefit from lower interest rates. The forecast profit growth for our small cap fund is around 17.7% y/y, with a P/E of 15.3x next year's profits. This implies a PEG ratio of less than 1, highlighting the attractive valuation of small caps. Ahead, we expect the share prices to be driven—in addition to more favorable interest rates—by analysts lifting target prices for 2025 as growth picks up speed once more. 

We thank you for your continued faith in us in investing your capital.

* MSCI ACWI Small Cap NTR $ in EUR