Fondita Finland Micro Cap – Strong start to 2023

The Fondita Finland Micro Cap fund has had a tremendously strong development during 2023. The decision we took in June 2022 to transform the Fondita Equity Spice fund into a fund focusing on Finnish micro-cap companies, i.e. Finnish companies with a market value below 800 million EUR, has proven to be right. The reason for refocusing the fund was to offer our customers the opportunity to invest in exciting Finnish small companies that can become the stars of the future and we are delighted to now have three micro-cap funds in our product offering (Finland Micro Cap, Nordic Micro Cap and European Micro Cap)

The fund has generated a positive return of 14.12% during the first 4 months of the year, while its unofficial reference index (MSCI Finland Micro Cap Index) has risen 1.97%, i.e. an excess return for the fund of over 12%. The HEX25 index, that represent the larger companies on the Finnish market, rose 1.25% during the same period. The fund is leading the Finnish micro-cap fund offering this year and ranks very high also when compared to other Nordic or European micro-cap funds. 

There are several reasons for this strong outperformance, both stock picking and M&A transactions. The main alpha generator is one of our largest positions in the fast-charging company Kempower. The company has risen by 58% this year due to a growing order book, a positive profit warning and an upward revision of their estimates for the underlying market size. In total, the price has sixfolded since we participated in the IPO at the end of 2021. We have reduced our holding after the latest price surge but still find the company very interesting.

In addition, we have seen a bid in three of our holdings this year, which has of course had a positive impact on the fund’s absolute and relative return. In February, the cyber security company Nixu, received a bid of EUR 13 from the Norwegian certification company DNV, reflecting a 70% premium to the then prevailing price. The other holding in the fund that received a bid was the gaming company Rovio. In Rovio’s case, there have been several purchase candidates this year. First the Israeli gaming company Playtika and then the Japanese gaming company Sega, which finally in April made a bid that landed at EUR 9.25. This price represented a 65% premium since the first bid speculation started in January. The third holding that is being acquired is the lighting company Nordic Lights. In this case by the American electronics company Methode, which in February made a bid of EUR 6.30, representing only a premium of 13% compared to the then prevailing share price. We are critical to this bid as the price tag is too low in our opinion.

The fact that these acquisitions have targeted our holdings confirms that we have managed to find interesting companies that have not been valued at their full potential. We still think there are many interesting companies among smaller Finnish companies. Admittedly, the risk level is higher among micro-cap companies, but the upside can in many cases be significant if the company in question delivers on its growth strategy and makes a breakthrough. It should be remembered that it is much easier for a small company to grow strongly than it is for a large global company.

Marcus Björkstén
Portfolio Manager

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