For the month, the Fund returned -2.36% vs the Small Industrials -4.52%. The biggest positive contributors in the Fund were Chrysos, Southern Cross Electrical, and Aspen; whilst the largest detractors included AI Media, Aeris Resources, and Neuren.
Within the portfolio, healthcare was particularly headline-driven. Neuren(NEU) was weak amid uncertainty around the European regulatory pathway (and broader sentiment concerns), even as the company announced an on-market buyback of up to 5% of issued capital. In industrials, Vysarn(VYS) was in focus following its February half-year release, which pointed to strong earnings momentum and management’s confidence around delivering the full-year target. We caught up with the CEO, James Clement, and continue to see multiple ways of winning over the next 12 months from his strategy across the business segments that will result in a more resilient and higher growth company.
Looking ahead, the key for smaller caps across healthcare, industrials, technology and REITs remains the same: balance sheet resilience, repeatable cash generation, and credible capital allocation. In healthcare, regulatory milestones and commercial traction are the key market focus. In industrials, pricing power and returns on incremental capital discriminate between companies. In technology, we see the debate over the winners and losers of AI continue, but valuations have pulled back which may provide support. In REITs, gearing, funding costs and asset quality continue to determine who can grow distributions versus merely defend them.
We continue to see the smaller cap segment offering compelling opportunities, but selectivity is critical. Many businesses in healthcare, industrials and technology retain strong structural growth drivers over a three-to-five-year horizon, yet capital discipline and balance sheet strength are increasingly important in a more normalised cost of capital environment.
Read the full report NorthStar February Monthly Report