The Global Smaller Companies Trust Market Snapshot – January 2025

In December, smaller companies fell in most geographies in sterling terms, with the exception of the UK and Asia ex Japan. Economic data surpassed expectations in the UK, Europe and Japan. In contrast, data points in North America and the Emerging Markets were generally below consensus. The leading sectors were technology, consumer discretionary and telecommunications. The laggards were materials, energy and utilities. Market breadth narrowed in December, particularly in the US. Interest rates were cut again in the US and the Eurozone. In the US, with the forthcoming change in government, the Federal Reserve revealed a willingness to be patient before cutting rates again. Bond yields rose in the month. Commodities were mixed with oil climbing and copper declining.

The Company’s Net Asset Value (NAV) fell 2.8% in December. The discount narrowed in the period. The movement in the Company’s NAV and share price outperformed the benchmark.

In North America, our portfolio outperformed its benchmark. Positive broker commentary lifted retailer Boot Barn Holdings. Growing optimism over a recovery in the semiconductor industry helped MaxLinear. Security software business Cognyte Software delivered strong results with good order growth and significant margin expansion. On the negative side, construction materials company Eagle Materials fell along with industry peers as companies in the new home construction sector reported lacklustre results. Earnings forecasts were trimmed slightly for tank barge operator Kirby because of lower customer activity in the petrochemicals industry. Shares of contract logistics provider GXO Logistics tumbled after the company ended its sale process and decided to remain independent.

The UK portfolio underperformed its benchmark in December. In the online retail sector, weak performance from one of Moonpig Group’s previous acquisitions led to an impairment of goodwill. Flexible office space provider Workspace Group drifted as bond yields climbed. Shares of semiconductor company Alphawave IP dropped after it announced an offering of convertible bonds. Positively, LSL Property Services saw an improvement in its surveying business and transitioned its estate agency division to a franchise model. Fragrance and flavourings producer Treatt reported encouraging results with good growth from recently entered markets. Earnings from electronic component producer discoverIE suggested improvement in the company’s end markets.

The European portfolio was behind its benchmark during the month. In pharmaceuticals, after a period of strong performance Siegfried Holding was downgraded by a broker. Rational, a producer of food preparation equipment, drifted along with the sector because of concerns over potential tariffs. Investors took profits in turbocharger unit manufacturer Accelleron Industries. Encouragingly, online share trading platform Avanza Bank attracted strong customer inflows and earnings forecasts were raised. Semiconductor equipment producers ASM International and BE Semiconductor Industries both rallied on the announcement of trade restrictions that were better than feared and in anticipation of a potential recovery in demand.

Returns in Japan were behind the MSCI Japan Small Cap index in the month. Software developer NSD reported lower than expected orders. Shares of specialty materials company Nichias declined in anticipation of slower earnings growth in 2025. Apparel retailer PAL Group was the subject of profit taking. On the positive side, as part of its strategy to simplify its business, television broadcaster Nippon Television announced that it is to reduce its ownership in four group companies. Earnings forecasts were upgraded for auto component manufacturer Niterra because of price increases and strong aftermarket demand. IT services provider WingArc1st rose along with the sector.

In totality, the Rest of World fund holdings outperformed during the month. Pleasingly, all four funds were ahead of the MSCI Asia ex Japan Small Cap and MSCI EM Latin America Small Cap indices.