With an average 23% cash weighting, the fund was able to outpace both its benchmark and peers in the first quarter. With U.S. small cap names selling off, the high cash balance helped to provide a buffer to this downside.
The managers continue to express concern about the high level of valuation in the small cap space. That had led them to raise a significant amount of cash in the fund. But with the year starting out as it did, with high levels of volatility and some decent selloffs, the team was able to find a few high quality candidates and put some cash to work. Over the quarter, they added a new tech name, Liberty Broadband, and added to some existing positions that had become even more attractively valued. At the end of the quarter, the cash balance was still high, sitting at 17%. While this is high, it is because the managers remain disciplined, and would rather hold cash than invest in an idea that does not meet their quality and valuation standards. They are committed to using periods of market volatility to step in and pick up attractively priced names as appropriate.
Over the long term, the fund tends to be less volatile than its peers or index, and offers excellent downside protection. However, given the high cash balance, I would expect it to lag in a rising market. Still, if you are looking for U.S. small cap exposure that is much different than the index, this is definitely worth looking at.