Continued upward trend in European markets with low implied volatility.


Fund Commentary
21 Apr 2017


In March, European financial markets continued their upward move, with little discrimination and an extremely low implied volatility.

The Fund’s benchmark was up +3.32% during the month. As a consequence, year to date performance now stands at +6.14% for the Fund’s benchmark.

In that context, the Fund returned +4.96% in March, outperforming its benchmark. Year to date return amounts to +10.55%, translating into a +4.41% outperformance. Since inception in May 2015, the Fund is up 24.63% while the Fund’s benchmark recorded a positive 2.48% return, representing a relative outperformance of 22.15% after 23 months of operations.

YTD performance was achieved with an average long exposure of approximately 88% throughout the quarter, a sign of prudence but also due to the fact that the AuM has increased regularly since 1st January 2017.

Tom Tailor was the most significant monthly contributor, followed by SAF Holland and Vexim. At the other end of the spectrum, Komax, Andritz and Kardex were the three main detractors. The number of positions remained constant in March as the Fund tendered its shares held in GfK to the offer launched by KKR and initiated a new position in Corticera Amorim in Portugal.

Tom Tailor, as mentioned, was the most significant contributor to the performance in March. This German textile retail company happened to be the main detractor in 2015 (from May to December). A position was taken when the Fund was created in May 2015 at a price of €8.61 per share and sold at € 4.94 per share with a sizeable loss in March 2016. Disappointing results led to meagre free cash flow generation and resulted in a breach of covenants that caught the market (and the Investment Adviser) by surprise.

The entire management team was changed in the course of 2016. Interestingly, the new CFO did not come from a retail background but an industrial one. The Investment Adviser’s team happened to know him from his previous experience as CFO of Uster Technologies, a niche and successful Swiss company involved in textile machinery inspection and quality control and in which the Investment Adviser held a position. Uster Technologies ended up being taken over by Toyota Industries in 2012.

In December 2016, after discussing with the new CFO, the Investment Adviser decided to rebuild a position in Tom Tailor at a price of €4.90 per share. They are now trading north of €9 per share. This example is, we think, a good illustration of the goodwill created by covering extensively and over a long period of time the same investment universe.


The views and statements contained herein are those of Pascal Investment Advisers SA in their capacity as Investment Adviser to the Fund as of 11/04/17 and are based on internal research and modelling.