Pear Tree Polaris Foreign Value Small Cap Fund

For the Quarter ended December 31, 2024

The Pear Tree Polaris Foreign Value Small Cap Fund’s Ordinary Shares (the “Fund”) underperformed its benchmark, the MSCI ACWI ex USA Small Cap Index (the “Index”). The Fund had a return of (9.51%) at net asset value compared to (7.59%) for the Index.

Market Conditions and Investment Strategies

After three quarters of market gains, the Index declined this quarter with losses across all sectors. The Fund was in a similar position, with only its Energy holdings in absolute positive territory, followed by outperformance in Health Care and Industrials. However, losses in an overweight Consumer Discretionary sector proved insurmountable. At the country level, the Fund posted 15% returns from Colombia, along with single-digit gains in Norway, Belgium, Germany, China, Hong Kong and a few other regions. Declines were noted in the United Kingdom, Japan, South Korea and France, the latter two of which are embroiled in political
turmoil. Foreign exchange had a notable impact, as the U.S. dollar strengthened against most other world currencies.

Consumer Discretionary returns were weighed down by Vistry Group PLC, as the U.K. housebuilder issued its third profit warning; we sold the stock during the quarter. Inchcape was down after reporting a slight dip in third quarter organic revenue, but sought to alleviate concerns by highlighting stabilized business in the Americas and Europe. The company went on to execute a share buyback. China Meidong Auto Holdings faced weak demand in a tepid local economy. One highlight was the 18% return from Xinhua Winshare Publishing, another Chinese company, with a monopoly in the school textbook distribution (a traditionally “recession-proof” business). D’Ieteren Group also posted gains, after the company completed a family shareholding
reorganization and paid and extraordinary dividend.

Industrials were mixed. Tecnoglass Inc. was up more than 15% after reporting strong earnings backed by organic growth, geographic expansion and margin improvement. SIXT’s quarterly revenues reached an all-time high on strong operating performance and better vehicle procurement metrics. Kyudenko Corp. and Qinetiq Group PLC declined.

Technip Energies capitalized on the renewable/sustainable energy transition in Europe, building out LNG terminals and blue ammonia projects. The company offered an upbeat revenue forecast, while announcing a big carbon capture contract. Equatorial Energia’s underlying operations are solid, with a high volume/low-cost distribution model. However, the Brazilian electricity distributor dropped on macro concerns, as the country’s fiscal deficit may impact consumer demand.

Portfolio Changes

The Fund booked profits when it sold out of Future PLC and Lancashire Holdings as each reached upper valuation limits. Samson Holding was sold at a premium when the chairman took the company private. Vistry Group and Crest Nicholson were both sold on fundamental concerns in an anemic U.K. housing market. Cash was redeployed to four new names including Poongsan Corp., a South Korean ammunition manufacturer with a worldwide customer base; Sopra Steria Group, a French IT service company; Sanyang Motor Co, a Taiwanese motorcycle company taking market share locally and in the China; and Ipsos SA, the French market research firm.

Outlook

Traditional engines of economic growth, Germany and France, have suffered poor performance amid political instability, while other European nations battle higher energy costs and general economic malaise. China’s domestic slowdown is slowly reversing course; however, tariffs could impact China’s export-based economy. Cognizant of these regional struggles, we are looking to optimize the portfolio by 1) expanding geographically into growing economies like India and other Asian locales, and 2) diversifying our exposure into more defensive sectors where we have been traditionally underweight.