Onze kernprincipes

He highlighted how car rental giant Hertz saw shares rally 900% in Q2 2020 despite filing for bankruptcy in May. Andrews said this rise – which was also witnessed in other low-quality firms such as JC Penny and Chesapeake – were evidence of irrational reaction trumping rational investment.

This was because investors saw something they couldn’t comprehend and wanted to get involved before missing out. This led Hertz – a technically failed company – experience a share price rise from $1 to $5 before snapping back sharply.

‘A fast response from our reactive brain has proven historically to be very useful if we are being chased by a wild animal, for example. However, when it comes to investing, it can prove to be very detrimental to performance. It is likely one of the explanations for why individual investors underperform market indices.

‘There have been various studies highlighting the underperformance of individuals. One of the latest studies is from Dalbar, a leading financial services market research firm that provides quantitative analysis on investor behaviour. It showed that the average annual return of the S&P 500 over 30 years to the end of January 2019 was 10%, but the average equity investor only achieved 5%.’

Andrews cited the report which suggested psychological traps, triggers and misconceptions had led to this response. Instead, he argued, not responding at a time of mass overreaction can be tough but is ultimately one of the right strategies to employ.

‘The truth is that doing nothing has historically proven to be the best strategy for your portfolio returns. Warren Buffett touched upon this topic many times, including in an interview on CNBC in 2016: “If they’re trying to buy and sell stocks and worry when they go down a little bit… and think they should maybe sell them when they go up, they’re not going to have very good results.”

‘The reason for this is that however much of a rational decision maker you may be, when it comes to something you are not familiar with and do daily, your amygdala just may not be ready for it.’

So, what can investors do about it? Andrews highlighted six methods he thinks can help investors combat these impulses.

1.  Learn to cope with short periods of underperformance

‘It is important to remember that in the short term, stock prices can materially deviate from the intrinsic values of the underlying businesses. In order to generate superior long-term returns, investors must be mentally prepared for these short periods of underperformance. This awareness helps control your reactive instinct to chase returns in every market climate.’

2. Don’t chase markets

‘The reactive impulse is very strong, but what investors must try to do is avoid listening to the amygdala, and thus avoid trying to time the market, or worse still chase markets higher on a daily, weekly or monthly basis.’

3. Maintain a disciplined investment process

‘As long-term investors, none of us should speculate. We shouldn’t chop and change our investment approach based on what is currently hot.’

4. Invest rather than speculate on binary outcomes

‘We shouldn’t invest in companies subject to binary outcomes that will make or break an investment (i.e. buy a company in the hope that it will receive a government bailout). Instead, our approach should be to execute a ‘simpler’ long-term approach to investing and aim to generate strong, long-term returns.’

5.  Do your homework

‘We carry out extensive due diligence on companies and only after careful reflection and analysis do we decide whether to buy shares or not. We are looking for those companies which have a proven track record of resilience and which aim to generate high returns on invested capital through shrewd capital allocation.’

6. Be patient

‘Patience enables us to benefit from great company management teams constantly reinvesting strong cashflow at high incremental rates of return. Rather than following our reactive brain and speculating to benefit from a short-term uptick in a share price, we do our best to turn off the noise and follow our reflective brain to benefit from a much more powerful force. Described by Einstein as the eighth wonder of the world, that is the power of long-term compounding.’

Source: https://citywireselector.com/news/this-aaa-rated-pm-s-six-tips-to-train-your-brain-for-better-returns/a1412474 

As valuations fluctuated in the pandemic-fuelled markets, Simons and Andrews opted to refresh the SilverCross Global Small-Cap fund, which is the top-performing fund in the Equity – Global Small and Medium Companies sector over a five-year basis.

The pair invested in industrial stocks XP Power and Rational and technology companies Esker, ATOSS Software and Technology One at the end of May, according to Morningstar data.

‘We generally have the philosophy of not doing anything at all,’ Andrews (above right) told Citywire Selector. ‘We have a very low turnover and we have like 10% portfolio turnover, but we’ve got a list of companies that are high-quality businesses that we have on our radar, but where the valuation kind of precluded us from investing in those businesses.

‘What we found in this crisis were, in particular, with small caps, was just a blanket drop in prices with little consideration for the businesses. Some companies will rightly fall but other high-quality businesses had sharp falls, where the underlying business is perhaps very resilient.

‘So there were a couple of days where we thought, well, this is really the great, great opportunity we’ve been waiting for. So, in the last three months, we actually added five new names to the portfolio, which is quite significant for us given that we have a 30-stock portfolio.’

Andrews said the decision to add the positions was designed as a means of ‘upgrading’ what was already in the fund. He said the cash balance of the fund was put to use to add new stakes, which sat at ‘nosebleed valuations’, according to the manager.

Topping up winners

It wasn’t just new ideas that proved attractive, Andrews said, as he and Simons also used the downturn to top up allocations to long-held positions. He named stocks such as Genpact, the fourth-largest holding at present, which is focused on company efficiencies.

Source: https://citywireselector.com/news/small-cap-stars-dive-on-nosebleed-valuations-for-new-positions/a1369057?ref=citywire_global_comment_list

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.”

Source: https://www.wealthadviser.co/2020/05/22/285850/investors-can-reap-rewards-next-three-years-if-they-hold-their-nerves-now-says

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

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.

Aluflexpack

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.

Pool Corporation

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.

Pitfalls

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%.

Source: https://citywire.co.uk/wealth-manager/news/the-global-small-cap-funds-left-behind-in-the-market-rally/a1357107

Terug naar vandaag. Vanaf de bodem op 23 maart 2020 is de wereldwijde small-cap index inmiddels 23% gestegen. Dit herstel komt na een daling van ruim 40% in slechts 33 dagen. Per saldo staat de index nu 26% onder de top en SilverCross Global Small-Cap Fund -20%.

Veel beleggers denken dat de recente stijging een 'bear market rally' is - een tussentijdse stijging in een dalende beurstrend. Tegelijkertijd horen wij om ons heen dat er bereidheid is om aandelen te kopen, maar dan wél op een lager niveau. Want, zo is de gedachte, schokkend slecht bedrijfsnieuws moet nog komen. Onze reactie daarop: Dat er slecht nieuws gaat komen leidt geen twijfel. Blijft de vraag in hoeverre de beurs dit al heeft verdisconteerd.

Wat we wel weten is dat de dislocatie in aandelen enkele weken geleden extreem was. Het werd veroorzaakt door een gebrek aan liquiditeit in combinatie met paniek. Een interessante index om te volgen is de Fear & Greed Index die dagelijks door CNN wordt gepubliceerd. Deze staat momenteel bijna op 'Neutral.' Een week geleden indiceerde deze nog 'Extreme Fear.' Angst leidt met name tot weinig kopers op de beurs. Fors lagere koersen zijn het gevolg. De historie toont dat het zeldzame kansen zijn geweest om goedkoop aandelen te kopen. Fear is just a state of mind.

Met de kennis van vandaag lijkt het ons onwaarschijnlijk dat kwalitatief goede bedrijven opnieuw extreem lage koersen zullen bereiken. Het dalende aantal nieuwe coronavirusbesmettingen en -doden per dag, in combinatie met de monetaire en fiscale verruiming door overheden lijkt een bodem in de aandelenmarkt te hebben gelegd. Tegelijkertijd houden wij er rekening mee dat er faillissementen en reddingsoperaties van bedrijven gaan komen die de huidige aandeelhouders in hun hemd zullen zetten. Wij denken dan met name aan bedrijven die onder structurele druk staan door technologische disruptie, zoals winkels, olie- & gasbedrijven of die een zwakke balans hebben, zoals bioscopen, cruiseschepen, en andere bedrijven met hoge vaste kosten.

Er woedt momenteel een discussie onder beleggers over de vorm van het economisch herstel dat zich zal aandienen zodra de lockdowns worden versoepeld. Ontwikkelt de economie zich in de vorm van een V, een L, of een Nike-logo herstel? Niemand die het weet. Wat nu logisch lijkt, kan over vier weken irrelevant blijken. Helaas weten de aandelenkoersen dit soort veranderingen vaak te anticiperen. Tegen de tijd dat duidelijk is hoe het herstel eruit ziet, hebben de koersen dat al ingeprijsd. De economieën kwamen maar langzaam uit de financiële crisis van 2008/09. Dit werd kort na de crisis de 'new normal' genoemd. Het bleek geen belemmering voor de start van de langste bull-market ooit. Wie had dat kunnen voorzien?

Wachten op meer duidelijkheid is daarom niet anders te kwalificeren dan 'market timing.' Zoals u als lezer van onze berichten inmiddels weet: daar houden wij ons niet mee bezig. Niemand kan dat met enige consistentie in termen van succes.

In onze bedrijfsanalyses nemen we mee dat 2020 en 2021 min of meer zijn afgeschreven in economisch opzicht. De waarde van een bedrijf wordt echter bepaald door de verwachte vrije kasstromen over de lange termijn. Eén jaar zonder winst drukt de waarde van een bedrijf met slechts 3%. Natuurlijk is er reden om voorzichtig te zijn. Maar is de koersdaling van 40% in verhouding tot de gemiddelde waardevermindering van bedrijven?

Sommige bedrijven zullen zich sneller gaan herstellen dan andere. Wij positioneren de portefeuille in SilverCross Global Small-Cap Fund zodanig dat er een balans is tussen beide. We laten ons leiden door data. Bijvoorbeeld uit China, dat inmiddels economisch herstelt. Het geeft een indicatie dat het ook in Europa en Amerika goedkomt.

Het grote verschil met vorige crises is dat de coronacrisis is veroorzaakt door bewust de economische activiteit fors te beperken. Wij zullen als maatschappij ook in staat blijken snel te kunnen op te schalen zodra het verantwoord is. Er zullen bedrijven zijn die flink gaan profiteren van een andere manier van werken. Meer thuis, minder op kantoor. Een paar voorbeelden wat er gaat veranderen: Meer software, online shopping, online learning, food delivery en online betalen, ten koste van behoefte aan kantoorruimte, winkels en zakenreizen. Dit geeft bedrijven de mogelijkheid om hun kosten te optimaliseren. Ook de aan het licht gekomen zwaktes in de huidige supply chains zullen worden aangepakt. Bijvoorbeeld niet alleen productie in China. In de gezondheidszorg zal het mogelijk moeten worden om de capaciteit snel en kostenefficiënt op- en af te schalen. Wij zullen deze structurele veranderingen meewegen in de selectie van nieuwe investeringen.

De komende weken en maanden zullen ongetwijfeld onzeker blijven. We leven in een bijzonder uitdagende tijd. We zullen als maatschappij leren van de fouten die we hebben gemaakt in de aanpak van deze epidemie. Deze crisis biedt ook kansen. Niet ten koste van anderen. Integendeel. Er is behoefte aan nieuwe oplossingen, innovatie. Bedrijven met een sterke financiële positie geleid door ondernemers met visie en lef kunnen bijdragen aan die oplossingen. Zoals het er nu uitziet, hebben wij er vertrouwen in dat de bedrijven in de SilverCross portefeuille sterker uit deze crisis komen en in 2021 of 2022 hun winstgevendheid volledig hebben hersteld.

Never Give Up!

De afgelopen week hebben wij met het management van diverse ondernemingen in de SilverCross portefeuille gesproken. Doel was om te begrijpen wat het gevolg kan zijn van weinig of geen omzet in de komende maanden. Uit deze gesprekken blijkt dat ons beleid om te investeren in bedrijven met een defensief bedrijfsmodel en een sterke balans z'n waarde bewijst in crisistijd. Wij hebben er vertrouwen in dat 'onze' bedrijven de crisis gaan overleven.
 
Wij hebben berekeningen gemaakt op basis van 'worst case' scenarios. De koersdalingen van veel SilverCross ondernemingen lijken ons groter dan de economische schade als gevolg van het Coronavirus. Er is tenminste één onderneming in de portefeuille waarvan de koers met bijna 50% is gedaald, terwijl de zaken beter gaan als gevolg van het Coronavirus.
 
Ongetwijfeld zal het Coronavirus de komende maanden een grote impact hebben op ons leven. Maar de paniek zal verdwijnen. Wereldwijd zijn de koersen sinds de start van het jaar met meer dan 30% gedaald. Wij stellen hier niet dat we in de buurt zijn van een bodem in de markt. Het zou kunnen. Maar we weten het helaas niet.

Ondertussen staan media staan vol met verhalen dat het allemaal nog veel erger wordt. Door de onzekerheid kunnen koersen doorschieten naar beneden. Dat creëert kansen. De historie toont dat een investering na een beursdaling van 30% vrijwel altijd een positief rendement opleverde. Zie de tabel hieronder.

Het virus gaan we onder controle krijgen. Op dit ogenblik zitten miljoenen mensen thuis zonder werk. Dat is onhoudbaar en onbetaalbaar. Wij zijn er van overtuigd dat regering en ondernemers tezamen de schouders eronder gaan zetten om iedereen zo snel mogelijk weer aan het werk te krijgen. Ook gaan we onze maatschappij beter voorbereiden op een mogelijke volgende pandemie.

 
Wij wensen u sterkte in deze uitdagende tijden. We’ll live on.

Onverwacht startten Saudi-Arabië en Rusland afgelopen weekend ook een olieprijs oorlog, waardoor de olieprijs met tientallen procenten in een week is gedaald. Dit heeft de aandelenkoers van vele 'blue chips' zoals Royal Dutch/Shell hard geraakt.

De vraag is niet meer of we een recessie krijgen, maar hoe diep deze zal worden en hoe lang. De vraag is dan ook: hoe nu verder? Binnen SilverCross Global Small-Cap Fund is één investering verkocht afgelopen week. We zijn voorzichtig begonnen met het opbouwen van een nieuwe investering. Het Fund had vrijdagavond ongeveer 9% cash.

Wij hebben de afgelopen jaren consistent bedrijven geselecteerd met een sterke balans, een vereiste dat ze winstgevend zijn en een langjarig track record van succes hebben. Deze criteria zijn onze eerste 'line of defence.' Het betekent niet dat de koersen van de aandelen die we in portefeuille hebben niet kunnen dalen.

Dat hebben ze afgelopen week zeker gedaan. Het betekent wel dat deze bedrijven de beste kansen hebben om sterker uit de aankomende Coronarecessie te komen. Beleggers zullen proberen de impact van de maatregelen ter bestrijding van het Coronavirus juist in te prijzen. Dit kan twee kanten op gaan. Ook wij weten helaas niet welke. Wat wij wel weten is dat de wereldwijde aandelenkoersen zijn gedaald met 30% vanaf de top. Afgezien van de depressie in 1929, is het altijd een goed idee geweest om dan in aandelen te investeren. Drie jaar na zo’n sterke daling stonden de koersen vrijwel altijd fors hoger. Zie de tabel hieronder.

De paniek rondom het Coronavirus is tijdelijk. De mensheid heeft enorme veerkracht getoond door de eeuwen heen. Ook over deze crisis komen we heen. De economie zal zich herstellen. Het zou kunnen dat dit de komende weken nog niet zichtbaar wordt in de koersen. Maar vergeet niet: 'It's always darkest before dawn.'

SilverCross zal vasthouden aan haar beleggingsbeleid. Als significante mede-investeerders in het Fund kunt u erop rekenen dat wij ons 100% toewijden aan het behalen van een aantrekkelijk lange termijn rendement. Deze Coronacrisis biedt nieuwe beleggingskansen. Daar richten wij ons nu op.

Vriendelijke groet,

David Simons & Chris Andrews

(In de tabel van vorige week was een kleine fout geslopen. De correcte versie staat op onze website www.silvercross.nl onder de sectie 'In het Nieuws.')

De geschiedenis heeft ons dus geleerd dat crises aan de basis staan van een aantrekkelijk rendement. "This time is not different." Ter illustratie, als u aandelen had gekocht elke keer direct nadat de beurzen met 20% waren gecorrigeerd, had u in vrijwel alle gevallen (exclusief de depressie van de jaren ‘30 en de TMT-bubble van 2000) in de jaren erna een aantrekkelijk rendement behaald. Zie de tabel. Daarom is een lange termijn perspectief essentieel. Juist nu.

Getoonde 3-jaars rendement is het rendement dat zou zijn behaald als u had gekocht op de eerste dag dat de S&P500-index met 20% was gedaald. Dit rendement werd behaald ondanks dat de koersen eerst verder zakten.

SilverCross belegt voor de lange termijn. De bedrijven waarin SilverCross heeft geïnvesteerd hebben een sterke balans, zijn winstgevend, zijn marktleiders en verkopen producten en diensten die mensen en bedrijven nodig hebben. Deze bedrijven zijn in de tientallen jaren dat zij bestaan al vaker door een periode van tegenspoed gegaan. Wij hebben er vertrouwen dat zij ook deze onzekere periode succesvol zullen doorstaan.

Niemand weet hoe lang deze crisis zal duren. Wij hopen dat het aantal slachtoffers uiteindelijk beperkt zal blijken. Ook deze crisis zal voorbij gaan. Er is ook hoopvol nieuws, maar dat wordt momenteel ondergesneeuwd door alle alarmerende berichten.

Wij zullen de bedrijven in de SilverCross portefeuille goed blijven monitoren op nieuwe ontwikkelingen en rekenen erop nieuwe investeringen te kunnen doen.

Mocht u vragen of zorgen hebben, dan zijn wij altijd bereikbaar.

Vriendelijke groet,
David Simons & Chris Andrews

Disclaimer

This material is for informational purposes only and is not marketing. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. The contents of this document should not be treated as advice in relation to any potential investment. Securities discussed herein may not be held in the portfolio at the time you receive this document. Any performance figures are provided net of all fees unless otherwise stated and are calculated on a time-weighted, total return basis.

Funds which specialize in a particular region or market sector, such as small cap equity, may entail higher risks than those which hold a very broad spread of investments.

Past investment results are not necessarily indicative of future investment results. The value of all investments and the income derived therefrom can decrease as well as increase. This may be partly due to exchange rate fluctuations in investments that have an exposure to currencies other than the base currency of the Fund.

Reference to market indices or other measures of relative market performance over a specified period of time are provided for your information only. Reference to an index does not imply that the portfolio will achieve returns, volatility or other results similar to the index. The composition of the index will not reflect the manner in which a portfolio is constructed. The information and any opinions have been obtained from or are based on information from sources believed to be reliable, but accuracy can not be guaranteed. No liability is accepted by IBS Fund Management BV (“IBS FM”) or the SilverCross Global Small Cap Fund (“the Fund”) in relation to the accuracy or completeness of the information contained in this document. The information in this document is not comprehensive and is presented for informational purposes only. All opinions and estimates constitute our view as of the date of this presentation and are subject to change without notice.

IBS FM is the Manager of the Fund. The Fund is a fund for joint account (fonds voor gemene rekening) organised and established under Dutch law. Under Dutch law the Fund is not a legal entity nor a partnership, commercial partnership or limited partnership, but a contractual arrangement sui generis between the Manager, Stichting Bewaarder SilverCross (“the Title Holder”) and each of the Investors separately, governing the assets and liabilities acquired or assumed by the Title Holder for the account and risk of the Investors. IBS FM and the Fund do not provide investment advice, tax advice or legal advice and all investors are strongly urged to consult their own tax or legal advisors concerning any potential investment. Before making any investment decision, investors are advised to check the investment horizon and category of the Fund in relation to any objectives or constraints they may have. Investors must read the latest Fund prospectus and the Key Investor Information Document (“KIID”), available at our offices and on our website www.silvercross-im.com. The Fund is available only for investors for whom this investment is suitable, and who have the knowledge and experience to fully assess the characteristics and risks of the Fund. An initial investment in the Fund must be at least EUR 100.000.

Investors shall undertake to respect the legal, regulatory and deontological measures relative to the fight against money laundering and financing of terrorism, as well as the texts that govern their application, and if modified investors shall ensure compliance with the applicable texts. Investors will allow IBS FM and the Fund to comply at all times with these regulations.This material is never intended as an offer or solicitation for people living in a specific jurisdiction which does not authorize the distribution of the Funds mentioned herein. The Fund is not available for US Persons.

IBS FM holds an AIFMD license by virtue of article 2:65 of the FMSA. Please visit the website of the Dutch Financial Markets Authorities for the public register (ww.afm.nl).

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.’

Source: https://www.irmagazine.com/small-cap/beware-recent-big-ipos-caution-fund-managers

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. 

Source: https://citywireselector.com/news/aa-rated-duo-explain-why-this-years-ipos-are-a-no-go-zone/a1255729?ref=citywire-global-latest-news-list

David Simons, Managing Director & Portfolio Manager: “Sinds de start in 2014 hebben wij ons ten doel gesteld om een ‘best-in-class’ track record in wereldwijde small-cap beleggingen op te bouwen. Wij zijn volledig toegewijd aan dit doel – ons team beheert geen andere beleggingsstrategieën. Wij zien de rating van Morningstar als erkenning van onze ambitie en behaalde resultaten. In toenemende mate weten investeerders ons te vinden, waardoor het fondsvermogen is gegroeid tot bijna Eur 140* miljoen.”

Chris Andrews, Director & Portfolio Manager: “Wij geloven dat onze gedisciplineerde en gefocuste beleggingsaanpak, gebaseerd op investeren in ongeveer 30 goedgeleide bedrijven die langjarig kunnen groeien in waarde, een solide basis vormt voor een continuering van het opgebouwde track record. Wij investeren écht voor de lange termijn. Dat wordt zichtbaar in onze portfolio turnover van ongeveer 10% per jaar, implicerend dat elke investering gemiddeld 10 jaar lang in portefeuille wordt gehouden.”

Dit persbericht is gedateerd 1 november 2017. De Morningstar rating kan elke maand wijzigen.

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.

Source: https://citywireselector.com/news/global-small-cap-specialists-launch-dedicated-boutique/a765988