| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | -5.8% | -4.8% |
Rondure Overseas Fund declined 5.66% in Q3 2023, underperforming its benchmark as rising US interest rates continued to attract capital away from riskier international and emerging market assets toward high-yield US Treasuries. The fund's overweight exposure to small-cap stocks, which faced acute liquidity challenges, contributed to underperformance. Chinese consumer stocks struggled as post-Zero Covid recovery disappointed, though valuations may already reflect corporate pessimism. Despite near-term headwinds, the portfolio demonstrates attractive fundamentals compared to US large caps, with higher dividend yields, lower multiples, and stronger balance sheets. The manager maintains conviction that international and emerging market stocks are reasonably priced with potential dual benefits from undervalued currencies and equities. Key catalysts include peak US inflation and interest rates leading to dollar weakness, and potential Chinese stimulus to address economic challenges. The fund's positioning reflects patience for these macro conditions to shift, with cash representing the largest allocation amid current market dynamics.
International and emerging market small-cap stocks are attractively valued with better fundamentals than US large caps, positioned to benefit from eventual peak in US rates and dollar strength, plus potential Chinese stimulus.
The manager believes the catalyst for international and emerging markets will be peak inflation/interest rates leading to a peak dollar, and/or significant stimulus from China. If these conditions materialize, stocks outside US borders are reasonably priced with powerful potential benefits from currencies that also appear undervalued based on purchasing power parity analysis.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Sep 30 2023 | 2023 Q3 | 0388.HK, 0700.HK, 2330.TW, 2331.HK, 9142.T, ALTEN.PA, BBRI.JK, FPT.VN, GMXT.MX, GRG.L, HDFCBANK.NS, KOF.MX, PUM.DE, PXT.TO, REC.MI, TCS.NS, YUMC | China, Currency, emerging markets, international, rates, small caps, value | - | Overseas Fund fell 5.66% as rising US rates drove capital from international small caps to US Treasuries. Chinese consumer weakness and small-cap liquidity challenges weighed on performance. Portfolio shows superior fundamentals versus US large caps with higher yields and lower multiples. Positioned for eventual US rate peak and potential Chinese stimulus to drive international market recovery. |
| Jun 30 2023 | 2023 Q2 | 2020.HK, 2120.T, 2331.HK, 3529.TW, 601888.SS, AAPL, ABC.L, ACES.JK, B3SA3.SA, DPH.L, LULU, META, NKE, NVDA, TSM, WESTLIFE.NS | AI, emerging markets, India, international, Japan, small caps, value | WESTLIFE.NS | International small-cap manager underperformed in Q2 as AI rally favored mega-caps, but sees exceptional value opportunities across Japan, India, and emerging markets. Portfolio positioned for supply chain reshoring benefiting countries outside China. Awaiting catalysts like peak inflation or dollar weakness to unlock value in what manager describes as best opportunities since inception. |
| Mar 31 2023 | 2023 Q1 | 002430.SZ, 005930.KS, 051900.KS, 2330.TW, 3088.T, 3391.T, 6415.TW, DMP.AX, HCLT.NS, INMART.NS, MELI, PUM.DE, PXT.TO, TECHM.NS, TGS.OL | Banking, China, emerging markets, Quality, Travel, value | - | Rondure's cautious positioning paid off during Q1's banking turmoil while benefiting from post-Covid travel recovery and Latin American e-commerce growth. The fund remains conservatively positioned despite market optimism, focusing on quality companies with strong fundamentals. China's reopening and potential U.S.-China relationship improvement represent key catalysts, though rising rates pose structural headwinds for emerging markets. |
| Oct 2 2023 | 2022 Q4 | - | - | - | |
| Jan 12 2022 | 2022 Q3 | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2023 Q3 |
Small CapsThe fund is overweight small-cap stocks which have been a challenging place to invest since inception, especially now as declining liquidity is more acute for smaller companies. Small caps have underperformed significantly this year relative to large caps, creating a drag on performance but potentially better opportunities for active investors. |
Small Cap Liquidity Valuation Opportunities Underperformance |
RatesUS interest rates rising this quarter acted as a magnet for global assets, with investors moving away from riskier assets toward high-yield risk-free assets like US CDs. The fund believes equities will struggle until US interest rates stop rising and inflation is firmly defeated. |
Interest Rates Fed Policy Treasury Yields Inflation Risk-Free Assets | |
ChinaChinese consumer stocks performed poorly as consumers remain more beleaguered than expected after years of Zero Covid policies. The mood from Chinese corporates ranges from meek to bleak, though stock valuations may already reflect management pessimism. Stimulus is needed to propel China's economy. |
Consumer Weakness Zero Covid Stimulus Valuations Corporate Sentiment | |
ValueThe fund's portfolio shows higher dividend yields, lower multiples, and better balance sheets compared to US large caps. International and emerging market stocks appear reasonably priced with potential dual benefits from undervalued currencies and stocks, particularly when measured through purchasing power parity. |
Valuation Dividend Yield Multiples Balance Sheets Currency | |
| 2023 Q2 |
AIArtificial intelligence drove a massive rally in technology stocks, particularly semiconductors and hardware companies. The AI frenzy spurred investors to bet on companies like Taiwan Semiconductor and others seen to benefit from the emerging technology trend. However, the manager missed much of this rally and now sees the space getting some of the lowest returns in their models as expectations have risen. |
Semiconductors Hardware Technology Taiwan Expectations |
OnshoringThe portfolio is overweight the reshoring, nearshoring, multi-shoring, and friend-shoring theme. The manager believes a new globalization story is at play that largely benefits emerging markets countries other than China. This new globalization story represents a structural shift in supply chains moving away from China to countries like Mexico, Indonesia, India, and Vietnam. |
Supply Chains Manufacturing Mexico Indonesia Vietnam | |
Small CapsThe manager focuses on inefficient spaces including micros, smalls, and mid-caps outside of the US. Small- and micro-cap international and emerging market stocks are described as inexpensive and profitable, unlike the US small cap space which tends to be littered with unprofitable companies. Many profitable companies remain small because they are simply ignored and unloved. |
Inefficiency International Emerging Markets Profitability Valuation | |
JapanThe manager sees good combination of Quality and Value in Japan in the micro, small and mid-cap spaces. There is an increasing focus on returns on equity in Japan which serves as a catalyst. The Japan rally is viewed as real this time due to higher returns focus, and the opening trade is alive and well in Japan as a less risky way to play Chinese tourists than with Chinese stocks. |
ROE Opening Trade Tourism Quality Value | |
IndiaIndia is expensive on the surface but has some of the highest quality companies with exceptionally long duration growth stories. It is one of the few countries where the manager thinks long run growth is worth the short run multiple risk. India has some of the best companies in the world down cap with good management teams and businesses that tend to be leaders in their niches. |
Quality Growth Management Multiples Leadership | |
| 2023 Q1 |
BankingThe quarter featured cascading collapse of several U.S. banks including Credit Suisse failure, creating the most serious banking crisis since 2008. The fund was underweight financials which served them well as the sector was one of the poorer performers during the quarter. |
Credit Stress Regional Banks Financial Crisis |
ChinaChina's post-Covid reopening is viewed as a major catalyst for emerging markets and cross-border travel. Beijing has adopted a friendlier tone toward private enterprise after being largely hostile over the last two years. China represents 33% of the MSCI Emerging Markets Index. |
Reopening Policy Travel | |
TravelPost-Covid recovery in tourist traffic drove outperformance in Mexican airports and transportation stocks. Thai private hospitals catering to foreign medical tourists and Mexican airports rebounded strongly coming out of Covid lockdowns, with the fund taking some profits in both areas. |
Tourism Airports Recovery | |
E-commerceMercadoLibre, the largest e-commerce and payment ecosystem in Latin America, was a main contributor to performance. The company has significant room for growth as ecommerce and digital payment penetration rates improve across the region. |
Digital Payments Latin America Growth |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Jun 30, 2023 | Fund Letters | Rondure Overseas Fund | - | Lifull Company | Real Estate | Real Estate Services | Bull | Tokyo Stock Exchange | Digital transformation, Japan, Micro-cap, Online Platform, Property-services, real estate technology, Value | Login |
| Jun 30, 2023 | Fund Letters | Rondure Overseas Fund | WESTLIFE.NS | Westlife Foodworld Limited | Consumer Discretionary | Restaurants | Bull | National Stock Exchange of India | Consumer Discretionary, Emerging markets, franchise, growth, India, Multi-decade Growth, Quick service restaurants | Login |
| TICKER | COMMENTARY |
|---|---|
| 2330.TW | The strategy's significant underweight of Taiwan Semiconductor Manufacturing Co. and Tencent Holdings, both of which did especially poorly last quarter, aided relative performance. |
| 0700.HK | The strategy's significant underweight of Taiwan Semiconductor Manufacturing Co. and Tencent Holdings, both of which did especially poorly last quarter, aided relative performance. |
| 2331.HK | Consumer Discretionary fared better, but one of our larger weights in this sector, Chinese sportswear brand Li Ning Company, proved costly. Consumers in China are more beleaguered than we had expected after the country's years-long experiment with Zero Covid. Their weakness has meant that consumer stocks like Li Ning that depend on the spending power of Mainland Chinese customers have struggled this year. |
| FPT.VN | Vietnam, in contrast, is not in the benchmark at all, yet we believe it is an emerging market that at times merits exposure. Our single holding there in Q3, IT outsourcing company FPT Corp., rose +23.17%. |
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