ASX:VNGS Vaughan Nelson Global Equity SMID Fund (Quoted Managed Fund) Find out more

Jim Eisenman, Portfolio Manager at Vaughan Nelson, recaps the Global SMID strategy’s first Quarter of 2024.

April 29th, 2024

Lightly edited transcript

Dan Hughes: Welcome to the Vaughan Nelson Podcast. Today is the first quarter 2024 Vaughan Nelson Global SMID Recap. And with me today is lead portfolio manager, Jim Eisenman. And with that, Jim, I’ll turn things to you.

Jim Eisenman: Thanks, Dan. Global equity markets continue to rally in the first quarter, and were boosted by increasing global liquidity. Valuation multiples expanded while earnings were largely in line with expectations. Industrial activity, which had been contracting for about 18 months, started to show signs of a trough during the quarter with affirming of commodity prices.

Industrial activity should stabilize further during the second quarter and start to expand in the second half of the year, although the pace of that expansion remains to be determined. Interest rates have also moved higher as commodity prices have risen and inflation expectations are firming. For the quarter, the portfolio produced a positive absolute return and outperformed the benchmark. The relative outperformance was primarily driven by stock selection in the United States and Hong Kong, which was partially offset by negative stock selection in Japan and South Korea.

After continued momentum in AI and housing-related names, early in the quarter, the market regime shifted in March. In March, we saw the winners of the rally being used as sources of funds by the market, as we saw small caps start to outperform large caps. During the quarter, through a combination of market action and trading, we decreased our portfolio weightings in Japan and Brazil while increasing our weightings in the United States, Ireland, Canada, Sweden and Hong Kong. At the sector level, weightings in technology, healthcare and consumer discretionary decreased, while our weightings in industrials, real estate, energy, financials and materials increased.

During the quarter, we harvested capital from the winners of the market rally and reallocated that capital into new positions or adding to positions that have not yet seen outsized multiple expansion. Despite recent near-term volatility, we do expect the improvement in economic growth and increases in global liquidity to support equity markets through the US presidential election in November. However, the outlook after that remains much less certain. The earnings season is just getting started for our small and mid-cap names. And we’re looking forward to updates from our companies over the next three to four weeks. And with that, I’ll turn it back to Dan.

Dan: All right, great, Jim. And with that, we’ll take a look into returns. In the first quarter of 2024, the Vaughan Nelson Global SMID Fund returned 9.9% net, and that’s against the MSCI ACWI SMID Cap Index, at 9.8%. The one-year return is 18.7% net, and for the MSCI ACWI SMID Cap Index, they sit at 19.9%. With that, we’ll put a bow on the first quarter. So Jim, great job out of the gate, and we’ll see you soon.

Jim: Thanks, Dan.

This podcast has been prepared and distributed by Natixis Investment Managers Australia Pty Limited AFSL 246830 for the Vaughan Nelson Global Equity SMID Fund (the “Fund”) and may include information provided by third parties. The information in this report is provided for general information purposes only and does not take into account the investment objectives, financial situation or needs of any person. Investors Mutual Limited AFSL 229988 is the responsible entity of the unquoted and quoted class units of the Fund. Vaughan Nelson Investment Management, L.P. is the investment manager. This information should not be relied upon in determining whether to invest or continue to invest in the Fund and is not a recommendation to buy, sell or hold any financial product, security or other instrument. In deciding whether to acquire or continue to hold an investment in the Fund, an investor should consider the current PDS and Target Market Determination for the appropriate class of the Fund, available on the website or by contacting us on 1300 219 207. Past performance is not a reliable indicator of future performance. There is no guarantee the performance of the Fund or any particular rate of return. It may not be reproduced, distributed or published, in whole or in part, without the prior written consent of Natixis Investment Managers Australia Pty Limited and IML.

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