The Global Small Cap Fund had a tough quarter. A significant underweight exposure to domestically-oriented U.S. companies was one factor, but there were a few stocks that also weighed heavily on the portfolio. The biggest contributor to the Fund’s underperformance compared to the benchmark was NCC Group (LSE:NCC), a UK-based cyber-security company. During the quarter, it announced three unrelated but significant cancellations in its assurance division (where NCC is hired to test a client’s system to identify any potential breaches) and one contract deferral. The stock reacted quite negatively to this announcement and ended the quarter down 50%. What have we done in response? Nothing. Or at least that’s what it may look like on the surface. However, rest assured that not selling down our position (although we had been trimming it ahead of the quarter) or adding to it has very much been a conscious, active decision. Though we’re obviously not thrilled with the news, we have spoken to management at length; our interpretation is that the underlying business is healthy and that the issues appear temporary. However, we recognize that it is a competitive industry and these cancellations may be a sign of additional issues.
From Mawer Canada's fourth-quarter 2016 commentary.
