Smaller companies rose in September but trailed their larger company peers. Equities were spurred by enthusiasm over companies related to artificial intelligence (AI). In addition, investors anticipated that the US Federal Reserve would resume interest-rate cuts as signs of weakness in the US labour market mounted. This duly transpired and the bank signalled that more cuts would likely follow before the end of the year. By contrast, the European Central Bank (ECB) and the Bank of England both kept interest rates on hold. Economic data was generally above consensus is the US and Japan but below expectations in other parts of the world. Political uncertainty remained high with the shutdown of the US government and the resignation of French Prime Minister Francois Bayrou.
The strongest performing sectors were technology, basic materials and consumer discretionary. The laggards were consumer staples, energy and health care.
The Trust’s net asset value (NAV) was unchanged in September, underperforming the benchmark. The discount at the end of September was at a similar level to the start of the month.
In North America, our portfolio underperformed the local index. Wheaton Precious Metals was supported by a surge in the gold price. Curtiss-Wright (a producer of niche industrial components) and Advanced Energy Industries (power related electronics) were seen as beneficiaries of spending on data centres. Weaker performers included owner and operator of tank barges Kirby; slower demand led to a broker lowering its earnings forecasts for the company. Volume growth remained anaemic at Graphic Packaging, a producer of boxboard packaging. Western and work wear retailer Boot Barn fell with the sector.
The UK portfolio was behind its benchmark. Positive contributors included construction company Galliford Try, where strong orders led to good results and an encouraging outlook. IT service provider Kainos rallied after forecasting revenues for the current fiscal year to be at the upper end of its forecasts. Law firm Knights Group was very active in hiring and the company saw expansion in its profit margins. Detractors included Jet2 which had a disappointing trading update with weaker margins because of lower pricing and an adverse shift in business mix. Research company YouGov slipped because of concerns over potential disruption of its business model by artificial intelligence. Profits were taken in data business GlobalData.
The European portfolio outperformed its benchmark. Positive contributors included Renk; the defence equipment supplier rallied as border tensions escalated at NATO countries. Strong loan demand lifted Bank of Ireland. Semiconductor equipment manufacturer ASM International rebounded as management reaffirmed its long-term revenue and earnings guidance. Negative contributors included electrical power equipment producer R&S Group, which saw lower profitability because of costs incurred to expand the company’s production capacity. Automation equipment producer Kardex suffered from concerns over a slowdown in demand because of tariff related uncertainty. Cairn Homes was the subject of profit taking.
The Japanese portfolio lagged the MSCI Japan Small Cap index. Tosei rose with the wider real estate sector. Auto parts producer Niterra announced an attractive acquisition that was taken well by the market. Engineering conglomerate IHI received a positive broker initiation. On the negative side, gaming machine manufacturer Sankyo issued earnings guidance that fell short of market expectations. Sluggish housing data in the US dragged down shutter manufacturer Sanwa. A broker lowered its earnings forecasts for office supplies producer Kokuyo.
In totality, the Rest of World fund holdings underperformed the MSCI AC Asia ex Japan small cap index. This was driven by the underperformance of The Scottish Oriental Smaller Companies investment trust, the Schroders Global Emerging Markets Smaller Companies fund and the Pinebridge Asia ex Japan Small Cap fund. The Utilico Emerging Markets investment trust was ahead of the benchmark.
As at 30 September 2025
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