Investment approach

We employ a rigorous and proprietary fundamental bottom-up investment process to build a portfolio of 25-35 exceptional companies. The market cap ranges between EUR 250 million and EUR 5 billion at the time of initial investment. Our investments are listed on a stock market in a developed market.

Exceptional companies generate high returns on their invested capital, have strong cash conversion and long-term growth potential. Equally important is quality of management and their alignment with all shareholders. We believe a company can only be exceptional if it acts as a responsible corporate citizen. We incorporate environmental, social and governance factors into our investment analysis. People, Planet and Profit go hand in hand. We engage constructively with management where we believe a company can improve its strategy, always with a long-term mindset.

Core concepts

The investment process of SilverCross is based on four core concepts. Each of these is essential for the selection of stocks we invest in. We look for companies with defensible, strong business models. We invest with a time horizon of at least five years. Both an attractive valuation and honest, aligned management are essential to help reduce the risk of sustaining permanent capital loss.

We select companies that can generate sustainably high return on capital and benefit from a recurring need for their products or services.

We look for companies that can scale their business efficiently. Reinvestment dynamics determine how big a business can ultimately be.

A combination of earnings growth and the potential for valuation multiple rerating lies at the basis of strong long-term returns.

We look for management teams that act as owner-operators with a significant equity stake in the business. That creates alignment.

Time as ingredient for success

One of the core concepts of our investment philosophy is compound returns. An important part of our research is to assess the long-term growth opportunities of a company. Since stock prices follow earnings, growth is essential for long-term stock price appreciation. Smaller companies have more potential for sustained growth. We only invest in a company if we see it can scale its business meaningfully for at least five years. Our goal is to be a long-term shareholder in growing businesses.

Time is the friend of a company that generates consistently high return on invested capital. This is the essence of the power of compound returns. It forms the basis for a superior investment result.

 

The million-dollar question

What would be your answer if you’re asked this question: Do you want Eur 1 that doubles for 31 days each day, or do you prefer to receive Eur 1 million today?

The importance of the above question cannot be exaggerated. The effect of compound return is easily underestimated. In the first few years, it doesn’t really raise eyebrows. But as time goes by, the effect becomes very visible. It’s like a snowball rolling downhill. No wonder Albert Einstein once said that compound interest is the eighth wonder of the world.

The answer truly is mind-boggling. Eur 1 that doubles for 31 days becomes more than 1 billion. The first 20 days of the month, you will be behind the 1 million. Finally, on day 21 you break the 1 million mark. It starts slow, but it grows exponentially. That’s the power of compounding in action.

I hear you say “But this is unrealistic. Who makes 100% a day for 31 days?” True. So, let’s use a more realistic example. You invest Eur 1000 the day your child is born and continue this charitable act each birthday until the adult age of 18 has been reached. You invest it in stocks that compound at 10% per year until your child reaches the graceful age of 65 years. Altogether, you invest a total of Eur 19,000. How large will your child’s pension pot be? A staggering Eur 4 million! Alternatively, your child can start saving when he or she turns 19, putting aside Eur 1000 per year until retirement. Total invested Euros will be Eur 45,000. How much is there for retirement? Just Eur 800,000. For the avoidance of doubt, the assumed 10% return is based on a long-term historical average. Nobody knows what level of return the stock market will offer in the next few decades. It can be higher or lower.

There are two important conclusions. The first is that the rate of return on an investment doesn’t need to be outlandish for spectacular capital accumulation.

The second conclusion is the importance of starting early. This is by far the biggest secret to compounding. The longer you wait, the more you will have to save later in life. The amount you must save to invest every year grows exponentially.

SilverCross has a specialised team of dedicated, experienced investors that scour the globe in search for excellent smaller listed companies. Each of these is selected on their ability to generate an attractive long-term compound rate of return. The team stays on top of developments related to each company it has invested in. Because good companies can turn into bad companies and bad companies can go bust.

 

Let time work for you

If you decide to become an investor that embraces compounding, then consider investing in SilverCross Global Small-Cap Fund. It will liberate you from the urge to time the market. You will not be hounded by the perennial question if "now is a good time to invest." Instead, you become a part owner of a small group of excellent businesses that can compound in value over time.

Read more about the power of compounding in this SilverBullet Newsletter.

Our Goal

We aim to achieve a long-term total return in excess of the MSCI World Small-Cap index¹. We focus on investment opportunities with attractive absolute return potential versus the risk we take. For each investment we require an asymmetric risk/reward: our analysis must show at least twice as much upside potential versus downside risk.

Downside risk is reduced when a company takes its corporate citizenship seriously. It can also improve its growth outlook. Environmental, social and governance factors are therefore taken into consideration when we make an investment.

The value added of our investment strategy can best be judged over a time period of 5-7 years, which is generally considered a ‘full market cycle’, or a stock market moving from peak-to-peak. Successful investing is about beating the market over time, not every time.

In our pursuit to identify highly attractive investment opportunities, we are geographically unrestricted and invest exclusively in the developed markets. Currency exposure will ordinarily remain unhedged.

¹MSCI World Small-Cap Total Return Net index in Euro

 

Current investments

Sustainable Business Practice

Environmental, social and governance (ESG) factors is fully integrated into our investment analysis. We aim to invest in companies that act as a responsible corporate citizen. Taking these factors into account helps to mitigate risk and achieve our goal of above average long-term returns. Applying sustainable business practices in small-cap investing can be challenging as small-cap companies often disclose little ESG data and there is a lack of high-quality coverage from third-party ESG service providers. At SilverCross, all ESG analysis is carried out internally by our team of analysts as part of the bottom-up due diligence research process. We use a proprietary ESG research process consisting of three phases. When we meet management, our engagement is based both on traditional fundamental and ESG analysis.

We believe that:

  • Companies’ business models can be part of the solution to environmental and social challenges;

  • Companies acting responsibly reduce 1) finite and polluting resources; 2) the risk of reputational damage;

  • We have a fiduciary duty to our society to discuss any ESG concerns, including UN defined SDGs.

How we apply our Sustainable Philosophy:

  • MSCI ESG research supports our sustainability analysis;

  • ESG analysis is fully integrated in the global small-cap selection process.

IBS Fund Management, which is the manager of SilverCross Global Small-Cap Fund, is a signatory to the UN PRI and is committed to the UN Global Compact.

 

Engagement with companies

We engage with companies about their operations, including ESG risks. As we are long-term owners in the capital of the companies we invest in, management teams tend to value our feedback. They see we are truly aligned, with a focus on the long-term success of the company for all stakeholders, which includes society at large.

When we believe certain ESG risks are apparent and cause any of our beliefs to be under threat, we will encourage management to improve its performance. If persistent engagement proves unsuccessful, we will sell our investment. We prefer not having to vote with our feet though.

 

Proxy voting policy

SilverCross is committed to exercising its voting rights associated with the shares held in SilverCross Global Small-Cap Fund as well as any investment mandates where proxy voting is delegated to us. Proxy voting enables us to build continuous dialogue with our portfolio holdings helping to promote best standards in corporate governance. We are committed to the Financial Reporting Council’s Stewardship Code which aims to enhance the quality of engagement between investors and companies to help improve long-term risk adjusted returns to shareholders.

We use software provided by Broadridge for our proxy voting. 

 

Sustainability at SilverCross

At SilverCross sustainability is not only something we consider for our portfolio investments but is a philosophy deeply engrained in our day to day living.

Energy Saving

  • At our headquarters in Amsterdam, we have energy saving lighting that automatically turn off when motion is not detected. Our computers are always turned off every evening before departing the office.

Paper Usage & Plastic Recycling

  • At SilverCross we do our very best to reduce the amount of paper that we use at the office. Documents such as annual reports, quarterly results and company presentations are now all obtained electronically rather than in paper form. If in face to face meetings we are provided with paper copies of presentations, it is company policy to return this for re-use and an electronic copy is instead requested.

  • We strictly recycle all paper used in the office with both regular card, paper recycled as well as confidential waste.

Travel & Carbon Offsetting

  • We travel extensively across the globe to meet with companies in order to be able to better understand the cultures, something that is impossible to do from our desk in Amsterdam. At SilverCross we are fully committed to offset our Carbon Footprint.

Diversity

  • As part of our Phase 2 ESG analysis, diversity forms part of our corporate governance analysis. At SilverCross, we believe diversity is not only important at the companies in which we invest but is also important in our own organisation. We believe that diversity leads to improved group thinking and ultimately a more successful organisation. We have a multinational team and we promote equality throughout our company.

For further information about our sustainable investing policy, please contact us via enquiries@silvercross-im.com.

Performance

As of Wednesday 18 September
Global Small-Cap Fund € 231.28

Performance (%) YTD 1-Year 3-Year¹ 5-Year¹ Since Inception²
SilverCross Global SC Fund (Net) 40.6 25.0 16.7 17.8 17.8
MSCI World Small-Cap TR (Net) 21.0 1.2 9.3 9.8 10.2
Excess return 19.6 23.8 7.5 7.9 7.6

Filter Results

Performance (%) 2019 2018 2017 2016 2015 2014
SilverCross Global SC Fund (Net) 40.6 -6.9 11.2 17.5 25.0 8.72
MSCI World Small-Cap TR (Net) 21.0 -9.6 7.6 16.1 11.0 8.66
Excess return 19.6 2.7 3.6 1.4 14.0 0.06

1 Average annualised total return
2 Average annualised total return since Fund inception 30 July 2014
Columns 2019 and YTD: Year To Date (last working day)

The Fund’s NAV is the value of a single participation and is computed daily using closing prices as of the NYSE closing time – usually 10:00 p.m. Central European Time. Securities for which prices are not readily available (such as when highly volatile global markets cause extreme distortions) are valued at a fair value under the Funds’ Valuation principles as described in the Terms & Conditions of the Fund’s prospectus.

SilverCross Global Small-Cap Fund return is stated net of fees since inception.
Total annual fee is 1.40%. Management fee is 1.15%. Operational Service fee is 0.25% up to EUR 250 million assets under management and 0.20% above that level.
Performance 2014 is measured from 30 July 2014 through 31 December 2014.