During the third quarter of 2021, the Pembroke International Growth Fund outperformed the MSCI ACWI ex-US Small Cap Index. Overall, relative performance was enhanced by favourable stock selection within the healthcare and industrials sectors.
The Fund’s financial sector exposure was increased during the third quarter through the purchase of Indian Energy Exchange. Information technology exposure was also increased. This allocation was offset by a reduction to industrial sector exposure through the liquidations of Vat Group and Airtac International Group.
From a geographic perspective, notable adjustments were increases to the UK and Japan, offset by a decrease to Emerging Asia. The portfolio’s weighting in emerging markets approximated 24% at the end of the third quarter, down modestly from 26% at the beginning of the period.
Two stocks that made positive contributions to performance during the quarter
Within the healthcare sector, Israeli-based InMode (“INMD”) was the top contributor. InMode is a leading medical device company specializing in aesthetic surgery. The company has developed proprietary minimally invasive and non-invasive technologies for various aesthetic applications including fat reduction, skin tightening and muscle toning. While the company is currently focusing on the large total addressable market (TAM) for medical aesthetics, the products are applicable in a wide array of indications, such as women’s health, ENT (Ear, Nose & Throat) and ophthalmology, areas which could significantly expand the targeted market.
As for the industrials sector performance, it was bolstered by Japanese professional services company Benefit One (“2412:Tokyo”). Benefit One is a provider of human resources (HR)-related services, in the form of outsourced fringe benefits. A structural tightening of the Japanese labour market has increased the need for employers to attract hires using the types of services offered by Benefit One. Future regulatory changes should also drive increased demand. As the business has a fixed cost base and low variable costs, operating leverage is high, supporting a rate of profit growth at the top end of the peer group.
Two stocks that made negative contributions to performance during the quarter
Partially offsetting these positive effects was negative stock selection within the consumer discretionary sector. Weakness within the sector was primarily due to Westwing (“WEW.F”). Westwing is an e-commerce company that provides an inspirational, curated “shoppable magazine” to eleven European markets. This product is designed to encourage browsing and emotional engagement rather than just targeted purchasing. Westwing is disrupting the traditional home and living industry, aiming to shift customers increasingly online by leveraging its very strong customer relationships. The share price declined amid concern over increased shipment costs may potentially have a short-term impact on contribution margins.
Boohoo Group (“BOO.L”), also within the consumer discretionary sector, made a negative contribution relative performance. Boohoo’s light, 100% owned, test-and-repeat business model is uniquely positioned to become a leader in online apparel. We believe Boohoo can remain successful at new brand launches and has the potential to build a portfolio of large brands. The share price declined in late September following softer than expected first half results, a period during which profitability was impacted by a number of cost headwinds driven by short-term factors largely related to the pandemic.
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This report is for the purpose of providing some insight into Pembroke and the Pembroke funds. Past performance is not indicative of future returns. Any securities listed herein, are for informational purposes only and are not intended and should not be construed as investment advice nor is it a recommendation to buy or sell any particular security. Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Pembroke seeks to ensure that the content of this document is correct and up to date but does not guarantee that the content is accurate and complete and does not assume any responsibility for this. Pembroke is not responsible for decisions or actions taken or made on the basis of information contained in this document.