BMC Global Small Cap Select October 2024

The best contributors to returns during the month were IDT Corporation, United States Lime & Minerals, and Games Workshop. Those with the poorest performance were Axfood, VBG Group, and Catena. We also experienced a share of currency effects affecting returns during October as the Swedish crown weakened against the US dollar.

The explanation behind the good performance by United States Lime & Minerals lies in its solid Q3 report, in which the company stated price increases of 14%. These price hikes fed directly into the EBIT line, which was up a massive 60%! Another unique company in our fund that had a good month was Games Workshop, which makes the Warhammer board game. The company also has a collaboration with streaming service Amazon Prime to create a series based on Warhammer and this could provide the company with some decent licensing revenues in the future. One of the weaker performers during October was the well-run and otherwise profitable Axfood. The equity markets reacted poorly to its report, in which the company saw margins narrowing owing to its "investments" in lower prices to consumers in a bid to maintain market share. 

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

The equity markets were volatile during October, affected by sizable swings in long-term bond yields and statements from China regarding economic stimuli. China is undertaking an expansive fiscal policy aimed at supporting the country's growth, including, among other things, debt cancellation, measures to aid consumers, and easing of banks' security measures so they can lend more. News of these economic stimuli has bolstered the Chinese equity market.

Inflation in the US continues to drop, leaving us anticipating a further cut in the policy rate of 0.25–0.5 percentage points before year-end. Despite falling inflation, the ten-year US treasury bond yield has risen by 0.5 percentage points to around 4.3%. Expectations of a deepening US budget deficit in the coming years with Donald Trumps win in the presidential elections, lie behind the latest interest rate increase. Trump spoke widely in his election campaign about cutting corporate taxes, which would reduce the amount of tax the state receives. The rising market interest rates lessened the risk appetite for stocks during the month, and thus the appeal of investing in smaller companies.

Last month, we wrote that vehicle manufacturers in Europe were undergoing a minor crisis—and this has now widened into a greater quagmire. VW is now discussing the closure of three plants in Europe and making thousands redundant to cut its costs. The company is suffering from having been far too slow in transitioning its manufacturing to electric vehicles. Pure electric cars currently represent less than 10% of all vehicles rolling off VW's lines. China's BYD is now the world's largest electric vehicle manufacturer, with revenues surpassing Tesla's in the company's most recent quarterly report. All this drama among European vehicle manufacturers also affects the semiconductor industry, which supplies them with chips. As a result, companies like Infineon and ST Microelectronics have seen their stock prices plummet.

Portfolio changes

During October, we made the following changes to BMC Global Small Cap Select. We sold our Champion Modine Manufacturing, taking home a decent profit. We invested in two new Champions: Redox and Palomar. Redox is an Australian distributor of industrial chemicals in its domestic market and the US. Palomar is a US insurer that specializes in insurance against earthquakes, among other things. Both companies have historically reported impressive growth and profitability in their businesses.

The fund's positioning—our market expectations

Our global small cap fund offers an exciting blend of solid Champions and thrilling Special Situations stocks. We expect the fall's rate cuts will prove a key trigger for returns in the future. A further positive factor for the equity markets is the end of the US presidential race, which we can now put behind us. At the time of writing, BMC Global Small Cap Select sees forecasted aggregated profit growth of around 15% for the coming year, which would contribute positively to the fund's future returns. 

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

*MSCI ACWI Small Cap NTR $ in EUR