FGP Global Smaller Companies Fund
We launched the FGP Global Smaller Companies Fund in the summer of 2021 to provide investors with opportunities for long-term capital appreciation in smaller equities globally. The Fund is managed by FGP’s Global Equity Team with the same successful quality and value investment philosophy and process used by FGP for over 40 years. This team also manages the firm’s Global, International, U.S., and Emerging Market equity strategies.
Why smaller companies?
Smaller companies have historically generated higher absolute and risk-adjusted equity returns than larger companies (albeit with more volatility), and we believe this category provides abundant opportunities that are distinct from larger capitalization stocks.
The Fund’s investment universe encompasses a significant segment of the broader market that might be underrepresented in investors’ portfolios. The total market capitalization of the Fund’s benchmark, the MSCI ACWI Small Cap Index, is approximately one-quarter that of the S&P 500 Index. The small cap universe is also a fragmented market. As at June 30, 2021, the 10 largest companies in the MSCI ACWI Small Cap Index had a combined weight of only 1.4%. This is a major difference from large-cap indices, where a few stocks can drive a large portion of the return.
The Fund in brief
We aim to own a collection of global companies with strong business models that produce outstanding results in terms of shareholder returns, business performance, and societal impact.
The Fund invests in companies with a market capitalization typically in the USD 1 billion to USD 30 billion range. The Fund will typically hold 40 to 55 companies and a cash weight of 2% to 5%. There may be exceptional periods where the Fund will hold as few as 35 companies and as many as 60. Due to the lower liquidity of the universe, we will have a maximum weight of 4% in a single company at cost. The maximum absolute weight of any one company is 10% of the Fund’s assets under management.
The companies we invest in proactively find ways to create a positive impact even if it adversely impacts short-term profits. We believe strong ESG compliance makes companies more predictable and durable. The Fund therefore does not currently own any companies involved in the production of weapons, tobacco, gambling, or fossil fuels. We intend to maintain such a stance in the Fund indefinitely.
Investing in smaller companies means facing higher potential risk. That is why risk mitigation is a key component of our investment strategy:
|Risk Type||Example of Risk||How we mitigate this risk|
|Business||Obsolescence, disruption, and share loss.||Buy leading companies with strong competitive advantages in healthy ecosystems.|
|Financial||Bankruptcy and cash burn.||Buy companies with low debt, high free cash flow conversion, and low capital intensity.|
|Cyclicality||Economic or industry downturn.||Buy companies with highly recurring revenue and clear demand drivers.|
|Valuation||Contraction of price-to-earnings ratio and results underperforming expectations.||Buy below intrinsic value and sell at stretched valuation.|
|Currency||Trading, translational, and transactional.||Diversify by country among stocks and businesses.|
|Liquidity||Excess time to exit positions.||Invest over 90% of the Fund in stocks we can exit in seven days or less.|
What are some attractive opportunities in the smaller companies’ universe?
FGP believes long-term earnings growth, strong investment results, and ESG compliance are not mutually exclusive. We see attractive opportunities in at least two dozen types of businesses, including:
- a UK car insurer
- an IT value-added reseller in the U.S.
- a global communications equipment testing company
- a U.S. company making consumer security software
- a residential mortgage appraisal and title agent platform in the U.S. and Canada
- a tankless water heater manufacturer operating globally
- a company offering non-invasive aesthetic treatments globally
- a manufacturer of automatic transmissions for heavy duty commercial trucks around the world
About the lead portfolio manager
Ray Szutu, CFA, Portfolio Manager – Global Smaller Companies
Ray joined FGP in 2018 as Research Analyst and was promoted to Senior Research Analyst in 2019. He was appointed the portfolio manager for the FGP Global Smaller Companies Fund at its launch in 2021. He is also a generalist research analyst on the global equity team and a member of FGP’s Investment Committee.
Ray’s career began in 2006 as a mutual fund analyst at Raymond James Ltd. He later moved to AGF Management Ltd. His career as an equity analyst started in 2011 at Sky Investment Counsel and continued at RBC Global Asset Management. Prior to joining FGP, he was an analyst at Invesco Canada covering Canadian and global equities.
Ray is a graduate of Simon Fraser University (BBA) and is a CFA charterholder.
See all our company’s people here.
Other pooled Funds managed by the FGP Global Equity Team
- FGP U.S. Equity Fund
- FGP International Equity Fund
- FGP Global Equity Fund
- FGP Emerging Markets Equity Fund
See a list of all our pooled funds here.