Pear Tree Polaris Foreign Value Small Cap Fund

For the Quarter ended September 30, 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 6.14% at net asset value compared to 9.03% for the Index.

Market Conditions and Investment Strategies

Negative returns in Materials and Information Technology hampered results, as did underperformance in Utilities and Consumer Staples. The Fund outperformed in the Consumer Discretionary, Real Estate and Energy sectors, while Industrials and Financials added measurably.

From a country perspective, developed markets proved lackluster, with the Fund trailing in Japan, Netherlands, Denmark, Singapore and South Korea, the latter of which was attributable to a semiconductor industry slowdown on realistic AI expectations. Double-digit gains were captured in developing markets, including Thailand, Indonesia, Taiwan, China, Portugal and Colombia.

Consumer Staples was dragged down by Glanbia PLC, while Utilities had tempered, albeit positive, returns for all holdings with the exception of Rubis. ENF Technology and Hexpol hurt the Materials sector. ENF Technology, which produces electronic materials/chemicals for chips, fell in line with the overall semiconductor industry. Swedish polymer producer, Hexpol, reported underwhelming second quarter results, with the market worrying about weak end demand in auto, building and construction.

Tecnoglass Inc. was the top portfolio contributor and leader in the Industrial sector, up more than 35% on solid quarterly results, with record revenue in its residential, commercial and multifamily builds. Loomis AB, delivered robust organic sales growth while increasing margins. Conversely, Doosan Bobcat was the main sector detractor, after news of a merger with Doosan Robotics was met with derision from minority shareholders and Korean government regulators.

Among Consumer Discretionary stocks, U.K. housebuilder Vistry Group announced robust semi-annual results, while proffering an upbeat outlook for the housing sector on the back of Bank of England rate cuts. The U.K. government plan to increase home supply and reform the planning system was also encouraging. Japan’s Open House Group was equally ebullient about a housing market recovery, pointing to high sales of Tokyo condos, strong U.S. real estate business and an upturn in single-family home sales. Other sector gainers included Inchcape, Samson Holding, Coats Group and China Meidong Auto Holdings.

Nearly 40% of Financials holdings had gains in excess of 10% for the quarter, led by Thanachart Capital, Lancashire Holdings and Amundi SA. The Thai government kicked off its “digital wallet” stimulus to boost the local economy; Thanachart was a tangential beneficiary of this scheme. At the opposite end of the spectrum, goeasy declined after the resignation of its CEO, as investors pondered the company’s future.

Portfolio Changes

During the quarter, the Fund sold Keller Group at a tidy profit as it reached valuation limits; other sales included The Nature Holdings Co. and AEM Holdings. Fund holding Redrow PLC was acquired by fellow homebuilder Barratt Developments; we exited following the deal news. There were no new buys during the period.

Outlook

Real wages (adjusted for inflation) have risen in most countries, while interest rates are falling; this bodes well for consumer purchasing power. In such macro-economic environs, Consumer Discretionary stocks and other cyclicals often do well; the Fund is traditionally overweight in cyclicals and is thus poised to capitalize on this trend. Our research continues to identify any number of attractive investment opportunities (especially in Asian markets, and specifically China); we expect to add new names to the portfolio in the next few months.