Our business principles lie at the heart of who we are and how we operate. We believe these principles are essential for long-term success. We define success in terms of our commitment to delivering strong long-term risk-adjusted returns within a well-defined investment framework.
By focusing on the interests of our clients and aligning ourselves with those interests, we create a durable partnership, where success is mutual.
Our reputation is our biggest asset. We will do everything to avoid damage to our reputation. We adhere to the letter and spirit of the law and regulations, because ethical behaviour is the foundation upon which to build long-term relationships and our business.
At SilverCross we are focused on investing in just one asset class: global small-cap equities. In our quest to be a leading investment manager in global small-caps, we know that we have to continuously challenge ourselves. it means going the extra mile in everything we do and always being open to further improving our processes. We encourage independent thinking, learn from inevitable mistakes, and aim for excellence in everything we do.
We work in a small team, where each person’s contribution weighs heavily. You have to be both talented and passionate at what you do. That’s why we are uncompromising in our selection of new colleagues, just like with our investments. We believe working in teams ensures a dynamic of optimism and high standards.
Participations in the Fund are qualified for sale in the Netherlands. SilverCross Global Small-Cap Fund does not pro-actively sell participations to investors residing outside of the Netherlands.
The minimum initial investment amount is Eur 100,000. Any subsequent investments must exceed Eur 25,000.
Before making any decision to invest in SilverCross Global Small-Cap Fund, we strongly recommend reading the Prospectus.
SilverCross Global Small-Cap Fund may be distributed through IBS Asset Management BV or through a licensed EU / EVA financial institution. Investors wishing to invest through their own advisor can do so by providing them the following ISIN code: NL0010832242.
All income generated by the Fund is treated as fiscally transparent. This means any income such as dividends and interest are taxed based on your individual tax position. We recommend consulting with your tax advisor about the potential tax consequences. Upon request, a list of all income received by the fund is available for your tax affairs.
For investors whose investments are treated in ‘Box 3’, the value of the Fund as of 1 January of each calendar year must be submitted to the tax authorities without any further requirements relating to income generated by the Fund.
Please note that your subscription will be processed the first Transaction date following the receipt of the investment amount, which is weekly on Wednesdays, or the first business day thereafter if the Dutch stock market is closed. The Investment Manager has the discretion to determine additional Transaction dates at any time.
The Fund Manager encourages potential investors to view an investment in the Fund as a long-term holding. Therefore, in case an investor wishes to sell its participations within 90 days after purchase, an anti-dilution levy of 3.0% of net asset value per participation will be incurred by the investor. This penalty serves to discourage frequent trading in Fund participations.
The Fund Manager is allowed to suspend or limit subscriptions or redemptions in the interest of existing participants. For more information about situations in which this can occur, see the Prospectus.
The sell-off around the world sparked by the coronavirus crisis is so rare and extreme in nature that it is likely to be followed by a significant recovery if it follows historic trends, according to global small-cap investment specialist SilverCross.Read more
This year has so far been dominated by the spread of the coronavirus across the globe, sparking the fastest downturn on record for markets and economies.
Investors are rightly concerned about what comes next amid record job losses and expectations of the collapse of many businesses.
However, Chris Andrews, co-manager of the top performing SilverCross Global Small-Cap fund, says the size of the sell-off we have seen in equity markets such as the US are rare, and are almost always followed by recoveries which generate significant returns over the next three years.
“We can’t predict the future and we don’t try to, but what we can do is point to the data from previous falls of this magnitude,” he says.
“Every time stock prices have fallen by 30 per cent or more from the top, they have proven to be a fantastic buying opportunity, with prices almost always higher three years after.”
Co-manager David Simons points out that since 1929 there have been six crashes where the S&P 500 fell more than 30 per cent, with the last two coming in 2002 and 2009.
If investors had bought the S&P 500 on the first day it traded 30 per cent below the high, regardless of any further falls, they would have made positive returns each time, with the one exception being the 1929 sell-off itself which sparked the Great Depression.
“As with all crises and downturns, this one will also be temporary,” Simons says. “Bad news will be followed by good news, and the significant volatility in share prices provides opportunities for bottom-up stock pickers.”
Amid the volatility the SilverCross team has screened companies in the portfolio most impacted by the coronavirus, evaluating their liquidity and how long they would be able to survive with no revenues, and making changes to the portfolio to reflect that.
“For one of our top ten holdings as of the end of 2019, our assessment in March led us to conclude the risk of permanent capital loss outweighed the potential reward, and that holding was sold,” Andrews said.
“However, we have also been patiently waiting for the market to present us with a buying opportunity. We have a shortlist of high-quality companies for which we have completed all the research in the past, and these opportunities came in March, with three new companies added to the portfolio.”
Global smaller companies have been one of the hardest hit areas in stock markets since the pandemic sent investors fleeing from risk assets.
From its peak on 16th Jan to the trough on 18th March the Russell 2000, an index of US small-caps, declined by 42%. In comparison, the US large-cap S&P 500 index declined by 34%.Read more
Stock market declines and increased volatility are a terrible combination, but amid the losses for many companies, they are also the basis for long-term wealth creation.
It is well-known that small-cap companies are under-researched. In a market panic, sell-side analysts barely have time to update their forecasts. Their focus is on large-cap companies. Small-caps become further neglected, leading to more mispricing. Increased volatility drives blanket selling of small-caps with often little regard for the underlying businesses.
Bottom-up small-cap stock pickers should be thrilled by the opportunity this creates, and since the bottom in March to the end of April, the Russell 2000 index, for example, has jumped 32%..
Bottom-up stock pickers that have done their homework and don’t rely on sell-side research have a prime opportunity to pick small-cap compounding machines trading at significant discounts to intrinsic value.
These small-cap gems rarely make a misstep, and infrequently trade at a significant discount to intrinsic value. Investors shouldn’t try to time the bottom, but rather buy great businesses at a discount whenever the stock market offers the opportunity.
So, what should be catching investors’ attention now? Below are four standout small-cap opportunities from around the world.
Genpact is a leader in digitally powered business process outsourcing. It leverages its expertise in digital solutions such as cloud, machine learning and robotics with its best-in-class knowledge within the banking, capital markets & insurance sectors.
Founded back in 1997 as the internal business process management unit at General Electric, it was spun off and listed on the NYSE in 2012 and its client base now covers 25% of Fortune 500 companies.
Companies search for the right partner to help them increase the use of technology in their operations as well as a partner that can run these operations with those technologies embedded inside.
Its shares have fallen alongside the wider US index, but Genpact has 80% renewal rates due to high switching costs for its customers, and 85% of its solutions are mission critical, leading to long-term recurring revenues.
This resilience has been proven in previous downturns, and while shares have recovered some of their lost ground after halving in March, there is much more upside to come.
GMO Payment Gateway
Japanese listed payment processor GMO Payment Gateway is having an incredible 2020 in terms of its share price, up almost 30% year-to-date as the world shifts to online for nearly every purchase.
While the gains for GMO have been strong, the fact remains that the long-term structural growth story remains intact in Japan. Japan’s e-commerce penetration is surprisingly much lower than many other countries with only 6% e-commerce penetration, versus 18% in the UK and 10% in the US.
As the market leading independent payment processor GMO is well positioned to benefit. If there is a full lockdown in Japan, consumer spending will decrease, so there are risks, but given its strong balance sheet, we are confident GMO is well positioned to whether any temporary drop in transaction volumes.
Listed in 2019 on the Swiss stock exchange, Aluflexpack is a premium packaging company in Europe which makes packaging from aluminium rather than plastic. Crucially, part of its customer base is the pharmaceutical industry, and its role as a key supplier in what is known as a ‘critical industry’ amid the pandemic is a real differentiator.
What SilverCross also like about this business is that client retention is very high. It has not lost any customers involuntarily in the last seven years and has focused on increasing business with large customers by working together on new products or via dual-sourcing contracts for existing products.
Clients can be retained for decades, as is the case with Ferrero Rocher, for example, for whom it makes the foil for its bonbons. In the current crisis, given the fact that food and medicines cannot be sold in stores without packaging, demand for its services is climbing, not falling, but the shares year-to-date are virtually flat.
Another name shrugging off the downturn is Pool Corporation, the US-listed home pool provider. It has been resilient throughout the epidemic, with shares rebounding off lows seen in March, and as its competitors run into issues around funding, the business has an opportunity to accelerate its market share gains.
Investors should not look past the long-term potential for the business either - the effects of the pandemic could unfortunately be with us for a long time, and they may likely change consumer behaviour.
We expect to see more families investing in ways to entertain themselves within the confines of their own homes, and Pool Corp will be a direct beneficiary of that.
It is important to stick to a proven process when investing in smaller companies, and more so than ever in the current environment. While there may be opportunity out there, some stocks have fallen for the right reasons and will face a torrid time going forward.
How can investors avoid them? There are three key company characteristics investors should look out for when investing in small-caps.
Firstly, it is important that companies have strong balance sheets. Financial strength has always been core to our investment process, but now more than ever a company’s ability to survive the coming storm is crucial. Contrary to many views out there, many high-quality smaller companies can survive for months, and sometimes years, with no revenues.
Stock specific due diligence is key, as while many smaller companies are well capitalised, the average company in the MSCI Global Small Cap Index has a net debt position of 1.8x Ebitda.
Another factor to look at is the resilience of a business. You could argue that given the current uncertainty, this is more important than ever. In practice this means investing in profitable companies with proven resilience either in the form of recurring revenues, or where there is a non-discretionary need for its products. People will always need to buy contact lenses and hearing aid batteries, for example.
Finally, small-cap investors must look for aligned management teams who share the same long-term goals as investors. Looking for executives with skin in the game gives investors comfort that their interests are aligned. You also want to see a proven track-record which includes experience of successfully managing businesses through past crises.
Citywire AAA-rated Chris Andrews and David Simons are the founders of Silvercross Investment Management and run the Silvercross Global Small Cap fund, which has returned 32.5% over three years versus a peer average of -2.2%
During the last shortened trading week, the global small-cap index rose by a whopping 14%. That is the biggest gain since inception of the index in 1998. The S&P500 rose by the most since 1974. Especially companies with weaker balance sheets rose strongly, having been hit badly during the recent pummeling of the stock market. This phenomenon is also known as a 'crap rally.' This phenomenon happens more often after a strong stock market decline and can last for a while, depending on the size of the previous decline. During the financial crisis of 2008/09, weak companies had declined by 80-99%. In the four months from the bottom in March 2009, the stock of these companies rose very rapidly. A bankruptcy was priced in but was avoided thanks to central bank measures that resulted in ultra low interest rates. High quality companies gained much less for a while, only to fully catch up afterwards.Read more
Back to today. From the bottom on 23 March 2020, the global small-cap index has risen by 23%. This recovery follows a decline of more than 40% in only 33 days. On balance, the index is now 26% below its all-time high while SilverCross Global Small-Cap Fund declined by 20%.
Many investors believe the recent gains in the stock market are a 'bear market rally' - a temporary recovery in a downward trend. At the same time, we hear that investors are prepared to buy shares, but only at lower levels, because they expect shockingly bad corporate news that is yet to come. Our response to that is: No doubt there will be bad news ahead. The question is to what extent the stock market has discounted this already.
What we do know is that the dislocation we experienced in stock prices several weeks ago was extreme. It was caused by a combination of low liquidity and panic. An interesting index to follow is the Fear & Greed Index which is published daily by CNN. This index currently indicates a 'Neutral' level after having indicated 'Extreme Fear' just about a week ago. Fear especially leads to few buyers for stocks. Significantly lower stock prices are the result. History shows that these moments of Extreme Fear have been rare chances to buy stocks cheaply. Fear is just a state of mind.
With today's knowledge it appears unlikely to us that high quality companies will again reach the extremely low stock prices seen a few weeks ago. The decline in the number of new coronavirus infections and deaths per day, in combination with monetary and fiscal stimulus measures seems to have put a bottom in the stock market. At the same time, we anticipate bankruptcies and rescue missions for companies that will leave existing equity investors empty handed. We are especially thinking about companies already under structural pressure caused by technological disruption, such as retailers, oil & gas companies or companies with a weak balance sheet, such as operators of cinemas and cruise ships, as well as other companies with high fixed cost bases.
At the moment, there is much discussion among economists about the shape of the economic recovery once the lockdowns are lifted. Will there be a V, L-shape or Nike swoosh shaped recovery? Nobody knows. What seems logical today can prove to be irrelevant in four weeks. Unfortunately, stock prices always seem to anticipate these types of changes. Once it is clear how the recovery is taking shape, stock prices have already discounted this. The global economy only slowly recovered from the financial crisis of 2008/09. Shortly after the crisis, we called this slow recovery the 'new normal.' It proved to be no obstacle for the start of the longest bull-market ever. Who could have anticipated that?
Waiting for more clarity is therefore nothing else than 'market timing.' As a reader of our updates, you are undoubtedly aware that we don't spend time on timing the market. We have never met anyone who has been successful timing the market with any consistency.
In our company analyses, we assume that 2020 and 2021 are more or less written off from an economic perspective. The value of a company is however determined by the free cash flows over the long term. One year without profit mathematically pressures the value of a company by just 3%. Of course there is reason to be cautious. But is a market wide decline of 40% relatable to the average decline in the value of companies?
Some companies will recover more quickly than others. We position the portfolio of SilverCross Global Small-Cap Fund such that there is a balance between both types of companies. We are being led by data. For example from China, which is already seeing its economy recover. It provides an indication that Europe and the USA will likely follow a similar path.
The big difference with previous crises is that the coronacrisis has been induced by us knowingly limiting economic activity. We will also prove to be capable of scaling up the economy once this appears responsible to do so. There will be companies that benefit significantly from a different way of working. More work from home, less time spent in the office. A couple of examples of what is going to change: more software, online shopping, online learning, food delivery and online payment, at the expense of need for office space, retail stores and business travel. This offers companies the opportunity to optimise their cost base. Also, weaknesses in existing supply chains will be tackled. For example, companies are less likely to want to rely on single sourcing from China. In healthcare we will have to make it possible to quickly and cost efficiently scale up and down capacity. We will take these structural changes into account when selecting new investments.
The coming weeks and months will undoubtedly remain uncertain. We are living in challenging times. As a society we will learn from the mistakes we have made in approaching this epidemic. This crisis offers opportunities as well. Not at the expense of others. Quite the opposite. There is a need for new solutions, innovation. Companies with a strong financial position, run by entrepreneurs with vision and guts can contribute to those solutions. As it stands, we are confident that the companies in SilverCross Global Small-Cap Fund will emerge stronger from this crisis and will have recovered their profitability by 2021 or 2022.
Never Give Up!
Due to excellent performance SilverCross is awarded by Citywire with an AAA-rating. This rating is awarded to only 2.5% of all investment managers.
SilverCross Global Small-Cap Fund ranks number 1 on total return in global small-cap funds category over the last five years. The Fund also ranks first on a one-year basis.
More info on the ranking and performance can be found here.
This info is dated 23 September 2019. The Citywire rating may change every month.
‘Hot’ floats are like ‘buying a lottery ticket,’ warn small-cap specialists
Most of this year’s big name IPOs will have lost investors money within the next five years, predicts Dutch-based global small-cap investment specialist SilverCross.
There have been a flurry of major-name companies with big floats this year, including Uber’s mammoth $82 bn listing and Beyond Meat’s sizzling IPO, which has proved to be the best performing flotation of the year, as well as WeWork, setting up for a big September IPO – in what has amounted to the most active period for IPOs since the dot.com heyday in the late 1990s.Read more
For all that, Chris Andrews and David Simons, co-managers of the highly ranked SilverCross Global Small-Cap Fund, put a different spin on the situation, warning investors they should be cautious.
In SilverCross’s most recent quarterly report to investors, the managers say investing in ‘hot’ IPOs is like ‘buying a lottery ticket’.
‘Investors are clearly attracted to IPOs, and the key difference now is that companies coming to the market have existed on average for 12 years versus only four in 1999,’ the managers note. ‘We avoid them, not because we don’t believe in their business models or their growth potential, but because of a combination of the valuations of these businesses in relation to the risks involved as well as the fact many have never made a profit.’
These IPOs translate, warn the managers, ‘into highly speculative investment propositions’. Putting this statement into historical perspective they note: ‘In the period 1980-2016, almost half of all IPOs had lost more than 50 percent of their value within five years, while another 20 percent had lost up to 50 percent of their value.’
In addition, only five percent of all IPOs had a five-year stock price return exceeding 400 percent, ‘so investing in these businesses is more like buying a lottery ticket,’ assert the managers.
Andrews, whose fund has returned an impressive 122 percent to investors since launching five years ago – versus the MSCI World Small Cap Index’s return of 64 percent – says the team’s investment process means they steered clear of these ‘hot’ IPOs.
‘We look to own between 25-35 small-cap companies globally which have strong long-term track-records, robust balance sheets and typically enjoy recurring demand for their products,’ Andrews says. ‘We want management teams to be invested in the equity of the companies they run, and we like family-owned businesses because their long-term approach fits with ours.’
While skeptical about the number of IPOs in 2019, Andrews nevertheless adds that the notion that stocks are in bubble territory is misplaced, with the price-earnings ratio of global small caps now at 20 times – versus the 20-year average of 29 times.
‘Although there are pockets of the market that may be overheated, given our concentrated portfolio we continue to find compelling investment opportunities,’ he notes.
‘The companies we invest in each aim to contribute to making the world a better place, and we invest in companies that make products or deliver services that people need, rather just like to have or use. This offers resilience during more challenging economic times, which may or may not come in the next 12 to 24 months.’
Highlighting this in detail Andrews highlights how global stock markets have declined strongly twice in SilverCross’s history when the fund’s resilience showed its worth: between April 2015 and February 2016, the China market crash and concerns of the pending end of quantitative easing in the US drove the MSCI World Small Cap Index down by 25 percent. But SilverCross declined by just 12 percent.
In the most recent market setback at the end of 2018, the index fell 22 percent, versus 15 percent for SilverCross.
‘Market declines are inevitable,’ notes Andrews. ‘We maintain a consistent and disciplined approach and do not worry about market declines. Instead, we use them as opportunities to buy great businesses on sale and hold them for the long term to benefit from the power of compounding. Time in the market, not timing the market is what drives wealth creation.’
Most of this year’s ‘hot’ IPOs will loose money within the next five years, warned Citywire AA-rated pair Chris Andrews and David Simons.
They manage the SilverCross Global Small-Cap Fund, which has returned 58.4% in three years to 30 June 2019.Read more
While, a flurry of big-name companies have come to the market in the past year, including Uber, Beyond Meat and Pinterest, Andrews and Simons have stayed clear and compared investing in such IPOs.
‘We avoid them not because we don’t believe in their business models or their growth potential, but because of a combination of the valuations of these businesses in relation to the risks involved as well as the fact many have never made a profit.'
Therefore, in fund managers' view such companies are similar to highly speculative investments.
They added that in the period from 1980 to 2016, almost half of all IPO’s had lost more than 50% of their value within five years, with another 20% experiencing up to 50% decrease in their value.
‘Only 5% of all IPOs had a five-year stock price return exceeding 400%, so investing in these businesses is more like buying a lottery ticket,' they said.
While sceptical about the spate of IPO’s in 2019, Andrews said that the notion that stocks are in bubble territory is misplaced as the P/E of global small-caps is now at 20 times versus the 20-year average of 29 times.
SilverCross is proud to relay that its Portfolio Managers, Mr. Simons and Mr. Andrews, have been awarded an AAA rating by Citywire, the highest possible rating. The rating is based on the Fund’s 3-year performance in relation to the risk it has taken. Out of a total universe of 13,500 fund managers Citywire tracks, less than 2.5% are awarded an AAA rating.
“Generating a strong long-term risk-adjusted performance for our participants, which include several SilverCross and IBS employees, is our primary goal. We are honoured and at the same time humbled by the Citywire recognition of our achievements so far,” say the PMs. SilverCross’ 3 year performance and its global ranking can be found on Citywire.
This press release is dated 14 December 2017. The Citywire rating may change every month.
Morningstar, a leader in independent investment research, has recognised SilverCross Global Small-Cap Fund with its highest-available 5-Star rating in the ‘global small-cap’ category. Only the top-10% of products in each product category receive five stars. SilverCross Global Small-Cap Fund also currently ranks number one in terms of three-year total return in that same category.Read more
David Simons, Managing Director & Portfolio Manager: “Since our inception in 2014, our commitment has been to build a best-in-class track record in global small-cap equities. We are entirely dedicated to this goal – our team manages no other investment strategies. As such, the recognition by Morningstar of our achievements so far is greatly appreciated. Investors looking for our approach to investing are increasingly entrusting their money to SilverCross, resulting in asset under management approaching Eur 140* million.”
Chris Andrews, Director & Portfolio Manager: “While Past performance cannot guarantee future results, we believe that our disciplined and focused investment approach, investing in about 30 well-managed businesses that can compound in value over the long-term, bodes well for a continuation of the investment track record built so far. We truly invest for the long-term, which is exemplified by our portfolio turnover of approximately 10%, implying we hold each of our investments for an average of 10 years.”
This press release is dated 1 November 2017. The Morningstar rating may change every month.
In the March edition of KAS Selections magazine, an article about SilverCross. Read how entrepreneurship is woven into the corporate as well as investment strategy, how our approach differs from other small-cap funds and what we aim for in a couple of years.
Global small-cap equity managers David Simons and Chris Andrews have set up their own investment firm designed to meet the needs of institutional investors.
The pair, who previously worked for Dutch group Kempen NV, have formed Amsterdam-based SilverCross Investment Management.Read more
It was formally established in partnership between company founder Simons (pictured left) and IBS Capital Management, a Dutch fiduciary and asset manager.
Speaking to Citywire Global, Simons and Andrews said the focus of the firm will be to establish itself as a specialist in high-conviction, global small-cap equity investing.
‘In terms of the launch of the company, it was about finding the right process to do this globally. In large-cap equity, real estate and bonds, we have already seen a move towards global some years ago but this is not the case with small-cap equity,’ Simons said.
‘This is an area that is definitely growing, as we see more players entering this segment, but it is still in its infancy, so we are going to see a real move towards the market looking at global small-cap opportunities.’
The duo has therefore launched a global small-cap equity fund, which is currently only available to Dutch institutional investors. However, the company is readying the application for AIFMD-compliance to allow it to distribute to a wider audience.
This fund invests in between 25 and 35 companies with an average holding period of at least three years. Small-cap stocks are those defined as having a market cap between €250 million and €5 billion at the time of purchase.
‘We like well-managed, growing businesses,’ Andrews said. ‘We are looking for great businesses that are trading at cheap valuations, while staying away from areas which we feel are too complex.’
Simons and Andrews, who oversee all investment aspects of the group, are supported by an investment analyst who helps cover the Asian market. Meanwhile, IBS provides a support team covering compliance, operations management and general management.
We believe our people are one of the most important contributors to success. Attracting and retaining a team of talented individuals is both challenging and extremely valuable. The strength of our team will be reflected in the strength of our long-term investment returns. We are always looking for exceptional and ambitious individuals that want to work in a team-oriented, collaborative working environment. If you are passionate about investing and in search of a workplace where you can develop and grow both personally and professionally, we invite you to send us your resume to firstname.lastname@example.org.