Why small-cap stocks outperform, and latest buys and sells

TL;DR

George Cook, manager of the Montenarro European Income Fund, discusses the outperformance of the fund due to their focus on smaller companies with sustainable competitive advantages in Europe.

Transcript

hello today i'm speaking to george cook full manager of the montenarro european income fund the fund invests mainly in mid-caps and small caps that are listed in europe with one of the key focuses looking for businesses with sustainable competitive advantages the fund is top quartile in its sector over three and five years what would you say are th... Read More

Key Insights

• ◾ The Montenarro European Income Fund's success can be attributed to the small-cap effect, a focus on high-quality companies, and a dedicated team researching small and medium-sized companies in Europe.
• 🔬 The limited scale and labor-intensive nature of investing in smaller companies contribute to the neglect of this sector by many investors.
• 🍉 Despite perceived risks, smaller companies tend to have long-term outperformance, making them an attractive option for long-term investors.
• 🤳 The fund has recently sold a telecom operator and an Italian risk management service company while purchasing a self-storage unit operator and a Norwegian retailer of soft furnishings.
• 🎁 Supply chain issues in the electronics industry have benefited the fund's investment in NCAB, while the increasing demand for environmentally friendly technologies presents opportunities for investment in energy-efficient companies.

Questions & Answers

Q: What are the main drivers behind the outperformance of the Montenarro European Income Fund?

The fund has benefitted from the small-cap effect, focusing on high-quality companies, and having a large team dedicated to researching small and medium-sized companies in Europe.

Q: Why do investors tend to neglect investing in smaller companies?

There are several reasons, including scale limitations for large institutions, labor-intensive research requirements, the perception of higher risk, and potential short-term volatility.

Q: Has there been much portfolio activity recently?

The fund aims to keep turnover low and focuses on long-term investments. They have recently sold a telecom operator and an Italian risk management services company and purchased self-storage unit operator SureGuard and Norwegian soft furnishings retailer KID.

Q: Are there any particular sectors or themes the fund is focusing on?

The fund aims to have a diverse portfolio and avoid overexposure to specific themes. However, they have been benefitting from supply chain issues in the electronics industry, as well as the increasing demand for environmentally friendly technologies and energy-efficient companies.

Summary & Key Takeaways

• The Montenarro European Income Fund has achieved top-quartile performance in its sector over three and five years by investing in small and mid-cap companies with sustainable competitive advantages.

• The fund benefits from the small-cap effect, where smaller companies tend to outperform larger ones. Their exclusive focus on high-quality companies and their large team dedicated to researching small and medium-sized companies in Europe have also contributed to their success.

• Many investors neglect investing in smaller companies due to perceived risks, limited scale for large institutions, labor-intensive research requirements, and potential short-term volatility. However, Cook believes that the long-term outperformance of small caps outweighs these concerns.