Fondita Finland Micro Cap – A very strong performance in a challenging market

The Fondita Finland Micro Cap fund has had a very impressive 2023 so far although the market environment has been challenging, mainly due to inflation jitters and escalating geopolitical tensions. Micro cap stocks in general have underperformed larger companies significantly both in Europe and the US during the past 2 years. In addition, Finnish equities have been amongst the weakest performing stock markets in Europe this year overall.

Smaller companies, usually associated with high growth expectations, tend to be much more sensitive to changes in the general risk appetite amongst investors as well as to changes in interest rates. This year we have seen both rising interest rates and a decrease in risk appetite amongst investors. All the more reason to be content with how the Fondita Finland Micro Cap fund has performed.

In June last year we changed the strategy of the fund from a finish all-cap fund to a fund focusing purely on finish micro caps. In hindsight, this was the right decision and has so far resulted in a clearly better return for our investors. The reason for the change of the funds focus was that we wanted to be able to better capture the growth opportunities provided by a long list of very promising finish smaller companies. These companies often have an interesting product or service and just on the verge of entering new markets outside the home market. Our ambition is to find companies with the best prospects for international success and invest in them at an early stage. Fondita has 25 years of experience in micro cap investing. This is something we want to leverage on in the Finnish market as well.

The Fondita Finland Micro Cap fund has during 2023 returned 4,01 % (per 20.9.2023) which is 7,85 %-points better than the unofficial benchmark MSCI Finland Micro Cap Index that dropped 3,84 %. With this outperformance we are among the absolute best funds within the Finnish (and Nordic) small/micro-cap segment so far during 2023.

We believe the fund has very good prospects in the long term. Micro caps as an asset class in general, is still under pressure and valuation multiples are looking attractive considering the expected growth. Once the risk appetite in the market returns, micro-caps as an asset class, and our fund in particular, has a good chance of continuing its strong performance.

Marcus Björkstén
Portfolio Manager