The Pembroke International Growth Fund outperformed the MSCI ACWI ex-US Small Cap Index during the second quarter of 2021. Relative performance was enhanced by favourable stock selection within the healthcare and industrial sectors.
Two stocks that made positive contributions to performance during the quarter
Within the healthcare sector, Italy-based Amplifon (“AMP IM”) was the top contributor. Amplifon is a global leader in hearing solutions, holding 9% of the total retail market. The market is very fragmented and dominated by “mom & pop” stores, thereby offering good opportunities for consolidation. While smaller players struggled during the pandemic, Amplifon strengthened its positioning and took market share by keeping stores open and restarting marketing investments before competitors. We believe that these moves position Amplifon well for further share gains moving forward.
Industrials sector performance was bolstered by Japanese information technology consulting firm BayCurrent Consulting (“6532 JP”). BayCurrent offers comprehensive consulting service in a wide array of industries, specifically focusing on strategy consulting, IT consulting and IT integration. Supportive Japanese Government policy, favourable labour demographics (by 2030, almost one third of the population will be aged 65 and over), early stage penetration of software and the current COVID environment have accelerated demand for digitalization, driving the need for IT consulting. BayCurrent has implemented a process to increase the number of consultants through better recruiting, hiring and training practices, creating a strong pipeline of talent.
Two stocks that made negative contributions to performance during the quarter
Partially offsetting these positive effects were negative stock selection within the financials and Information Technology sectors. Within financials, India-based AU Small Finance Bank (“AUBANK IN”) was the largest detractor. AU’s structural growth outlook is attractive given low banking penetration, exposure to an underserved market and rising incomes. Underwriting expertise is critical, as most AU customers are self-employed with minimum or no credit history. Management has maintained pristine asset quality through cycles demonstrating capabilities to assess repayment capacity and solid collection efficiency. AU’s fiscal fourth quarter financial results demonstrated solid growth, which was overshadowed by deteriorating asset quality amid the second wave of COVID-19 in India. Overall, our view of the long-term thesis is intact, but the next few quarters will potentially have elevated credit costs given the pandemic dynamics.
Within the Information Technology sector, Japanese IT services company Hennge KK (“4475 JP”) was the largest detractor. Through its main product HENNGE One (87% of revenues), the company offers an identity-as-a-service (IDaaS) tool that provides centralized authentication for a wide array of third-party cloud-based software services, with Single-Sign-On (SSO) technology. SSO is a solution that eliminates the burden of maintaining multiple username/passwords. The share price was hampered during the second quarter by investor concerns about higher advertising spending impacting profitability. Although supportive of longer-term growth, this spending is expected to weigh on the profit margin in the near term.
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Disclaimer
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.
