Global Small-Cap Equity Fund

June 30, 2024

Market Context

• The global small-cap market (Morningstar Developed Markets Small Cap Index) declined 2.0% in Canadian dollar terms in the second quarter.
  
• Most sectors of the market fell, with consumer discretionary stocks seeing the greatest decline. Resource stocks, notably gold and copper, were an area of strength.
  

Portfolio Specifics

• The portfolio is currently invested in 52 companies. 22 are based in the U.S., 13 in Europe, 5 in Japan, 5 in the U.K., 3 in South America, 3 in Australia, and 1 in Canada.
• The fund had a negative quarter (-4.4%) and is up 3.5% year-to-date. Some of our stronger performers from earlier in the year pulled back in the spring (Regal Rexnord, JFrog, ESAB) and a few holdings disappointed by announcing weaker earnings or guidance (Workiva, Integral Ad Science, Internet Initiative Japan).
  
• Our top performers included Onto Innovation, Topdanmark, and Clean Harbors. Onto Innovation, which makes defect inspection software for semiconductor manufacturers, profited from continued interest and high demand in the microchip sector. Danish insurer Topdanmark agreed to an acquisition by its largest shareholder, and environmental services leader Clean Harbors is benefiting from increased government regulation of hazardous waste.
  
• Our manager, TimesSquare Capital, is starting to see pockets of weakness in some sectors, and wasn’t happy with the decisions of certain management teams, which prompted a few transactions. Communication services firms Internet Initiative Japan and Integral Ad Science were sold based on weaker outlooks, while toy maker Spin Master and carbon fiber specialist Hexcel were removed following poor boardroom decisions in TimesSquare’s view (Spin Master overpaid for a recent transaction, while Hexcel brought in a new CEO with a mixed record). Two stocks that have seen good runs were trimmed, EMCOR (construction services) and Rakuten Bank (Japan’s largest online bank).
  
• Six companies were purchased in six different countries. Brazil-based Embraer makes regional planes and business jets and is capitalizing on Boeing’s missteps. Loar Holdings is an American supplier of crucial aftermarket aviation parts (e.g. brakes and de-icing systems). Ventia Services Group takes care of key infrastructure (roads, railways and energy facilities) in Australia and New Zealand. Tecan Group is a Swiss leader in biotech lab instruments. And in the financial services sector, Ringkjøbing Landbobank is a popular Danish bank, and St. James’s Place is a U.K. money manager that we previously owned and is trading at a compelling valuation again.
  

Positioning

• The fund invests in businesses with a clear competitive edge that offer products and services the world needs. A record of consistent sales and profit growth is important, as is a management team that has experience and integrity.
  

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Important information about the Steadyhand funds is contained in our Simplified Prospectus. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.