BMC Global Small Cap Select November 2024

The shares that offered the best contributions to returns during the month were United States Lime & Minerals, Alamo Group, and Palomar. Those with the weakest performance were Lyko, VBG, and Eurogroup Laminations. During the month, we also saw a currency effect that affected returns as both the euro and Swedish crown weakened against the US dollar.

Alamo Group was one of the best performers in November, coming with a quarterly report that positively surprised the market. The company reported that its industry business is going well, although its agriculture business is doing less well. What captured the market's attention was that the company is updating its cost-savings program for the agriculture business to reduce costs and increase profits. Profits should also increase in the short term owing to the company selling off part of its agriculture business area. Another exciting US small cap that reported in November was Legacy Housing, which is the fourth-largest manufacturer of prefabricated affordable housing in the US. It reported an increase of 11.4% in turnover y/y and net profits up by 19.4%. We currently see growing interest in small caps and the market climate has, hand-in-hand with interest rate cuts, become better for smaller companies.

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

The US small cap stock index, Russell 3000, was up by more than 4% on the day it became clear that Donald Trump will be the next US president. Between November 5 and the end of the month, the Russell 3000 rose by more than 6.5%, which can definitely be called the 'Trump effect' on the stock market. The market generally considers Donald Trump's corporate politics as more company-friendly for US firms than those of sitting president Joe Biden. Donald Trump has been elected partly on his pledge to cut taxes, but also on his desire to impose trade tariffs on everything imported into the US. This benefits domestic US companies but puts all those selling goods into the US at a disadvantage. Donald Trump pursues an inflationary fiscal policy that has led the 10-year bond yield to rise sharply, as the market expects somewhat higher inflation with him as president. Among his elections promises, Trump is expected to cut taxes, undertake the largest mass deportation of illegal immigrants in US history, and 'repatriate' jobs from China, among others, to the US. We believe the hefty tariffs Donald Trump plans to impose will drive up prices of goods and services in the US. He has long said he wants to 'Make America Great Again,' and he is likely to succeed with this in the short term (perhaps with an even larger budget deficit as a result), but it remains to be seen what the long-term economic effects of these policies will be.

It will also be interesting to following the games between Fed chairman Jerome Powell and Donald Trump. Jerome Powell wants to cut the policy rate in a careful and controlled manner to avoid setbacks in monetary policy, while Donald Trump wants to push pedal to the metal and spur as high growth as possible to create job opportunities. Our sense is that they are one another's opposite, pulling in different directions in how they think the US economy should be governed and what interest rates should be.

Regardless of who is president, the US equity market usually rises over their term of office. We are thus optimistic that BMC Global Small Cap Select will continue to increase in value during the coming four years.  

Portfolio changes

During November, we made the following changes to BMC Global Small Cap Select. We sold US companies Wabash och Axcelis, Germany's Aixtron, and Sweden's Axfood to make room for interesting new companies. We bought FlatexDegiro, a European online broker with 2.7 million customers in 16 countries. We also bought Canada's A&W Food Services, one of the country's largest fast food chains, along with two US companies: Everus and Griffon. Everus is newly listed on the stock exchange following its spin-off from MDU Resources. We believe Everus has a sunny future ahead of it, as the US continues to invest heavily in construction and renewal of the country's infrastructure. Griffon is a well-run company and the leader in garage doors in the US. A large, key share of the company's business lies in replacing existing garage doors. This represents 92% of turnover, while garage doors for newbuilds are currently only 8%. We like that the renovation share of the business is so sizable, as it means Griffon can earn money at both stages of the business cycle.

The fund's positioning—our market expectations

At the most recent update, BMC Global Small Cap Select had an expected aggregated profit growth of around 15%, which should contribute to the fund's future profitability. Our small cap Champions are ready for the coming US president and our carefully selected companies will continue to earn money during his term in office. 

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

*MSCI ACWI Small Cap NTR $ in EUR