Launch Alert: Grandeur Peak Global Explorer

By David Snowball

On December 16, 2021, Grandeur Peak Global Advisors launched its 10th fund, Grandeur Peak Global Explorer (GPGEX). The fund will pursue long-term capital appreciation through investments in a global portfolio of micro- to mid-cap stocks. Because of its focus on tiny names, the adviser has set a strategy capacity of $35 million for the fund and will close it rather than compromise the ability to execute the strategy.

As a practical matter, Global Explorer pursues Global Reach’s strategy with a management twist. The fund has six named managers, many of them relatively young. Rather than organizing the management committee around five sector teams, it’s organized around seven regional ones. 

The argument is that, especially in dealing with microcap names with low visibility outside of their home country, there are intrinsic advantages to developing exceeding deep ties in a region. The folks at Grandeur note,

We’ve spent several years working to identify what we call, Friends of the Industry, or the asset managers in each country with whom we might collaborate. We’ve had a handful of analysts do in-country exchanges, all in an effort to build better in-country expertise. Grandeur has encouraged its team to relocate and spend a meaningful amount of time living overseas in their target geographies. Our hope is that we continue to build this hands-on, on-the-ground, geography expertise across our entire team.

There is a lot of interaction between the various sector and region teams.

The team approach allows for a weekly meeting to share ideas, debate the valuations, opportunities, and relative weighting of each geography’s tranche, so the give and take of that exchange is seen as a benefit and represents our multiple minds approach as a firm.

For some of the newer PMs, this Fund represents a chance to lead in their assigned geography. Our Geography PMs are responsible for knowing and sharing research on economic, political, and financial risks faced by their geographies.

The bottom line seems to be that the managers will share many of the same insights but might pursue different strategies for executing them.

The Global Reach and Global Explorer strategies are core to our broad screening process. Every listed company gets screened at least twice a year, once from a sector perspective and once from the geography. 

As an example, the PM for Japan may have a universe that is filled with a large number of micro-cap companies. Perhaps it’s hard to pick which single company is differentiated enough to be the clear winner, so rather than take that risk, he might utilize a basket approach and own 3-4 names at a 25 bps weight rather than one position at 1% weight.  If this were a group of convenience stores, the Consumer PM for the Global Reach Fund might be screening for an investment in convenience stores but could own 3-4 high conviction ideas across all geographies. The result might be a similar list of names, but the weightings and risk management are different based on the geography and the results of our bottom-up screening. It’s possible over time that the Global Reach and Global Explorer Funds look less like each other if there develops a stronger geography bias. 

Two things that we think we think.

First, in general, your portfolio would really benefit from holding one Grandeur Peak fund.

We’ve pulled the record since inception for every Grandeur Peak fund from the MFO Premium screener. On both an absolute return and risk-adjusted return basis, every Grandeur Peak fund beats its peers … by a lot. The blue cells are places where a fund has a top 20% ranking since inception, and green is the top 40%. Out of 27 cells, 25 are distinctly peer beating.

    APR APR  vs  Peer APR  Rating Sharpe  Rating Ulcer  Rating Age yr AUM  $M
Global Opportunities Global SMID 16.5 +4.9 5 5 2 10.1 1,055
International Opportunities International SMID Growth 14.5 +4.7 5 5 2 10.1 1,003
Global Reach Global SMID 15.4 +4.4 5 5 1 8.4 429
Emerging Markets Opportunities Emerging Markets 8.8 +4.2 5 5 1 7.9 632
Global Stalwarts Global SMID 18.9 +5.8 5 5 1 6.2 466
International Stalwarts International SMID Growth 18.8 +8.0 5 5 1 6.2 2,262
Global Micro Cap Global SMID 17.3 +4.7 5 5 3 6.1 71.1
Global Contrarian Global SMID 24.7 +3.2 4 4 3 2.2 94.4
US Stalwarts Large-Cap Growth 62.3 +14.7 5 5 1 1.7 166

The Ulcer Index, like the Sharpe ratio, is a measure of risk-adjusted returns. The distinction of the Ulcer Index is that it measures the depth and duration of drawdowns; in general, funds that fall sharply and stay down give their investors ulcers. Funds that fall less and recover faster do not. That describes Grandeur Peak, which means that the funds have been easy to own.

In general, your portfolio would not particularly benefit from holding two.

Top-notch team. Clear, coherent discipline. With two exceptions, a strong focus on micro- to mid-cap caps. Given that, you’d expect a high correlation between the funds, and that’s what Grandeur Peak offers.

20-month correlations

Grandeur Peak’s youngest funds, other than Global Explorer, has a 20-month track record and so we’ll start there to get an overview of the degree to which the funds mimic one another’s performance.

Name Symbol GPIIX GPGIX GPRIX GPEIX GISYX GPMCX GGSYX GPGCX GUSYX
International Opportunities GPIIX 1.00 0.98 0.99 0.92 0.98 0.96 0.96 0.89 0.89
Global Opportunities GPGIX 0.98 1.00 0.99 0.92 0.97 0.95 0.97 0.89 0.93
Global Reach GPRIX 0.99 0.99 1.00 0.93 0.98 0.95 0.98 0.89 0.93
Emerging Markets Opportunities GPEIX 0.92 0.92 0.93 1.00 0.91 0.91 0.89 0.86 0.82
International Stalwarts GISYX 0.98 0.97 0.98 0.91 1.00 0.91 0.98 0.86 0.91
Global Micro Cap GPMCX 0.96 0.95 0.95 0.91 0.91 1.00 0.89 0.90 0.84
Global Stalwarts GGSYX 0.96 0.97 0.98 0.89 0.98 0.89 1.00 0.85 0.97
Global Contrarian GPGCX 0.89 0.89 0.89 0.86 0.86 0.90 0.85 1.00 0.79
US Stalwarts GUSYX 0.89 0.93 0.93 0.82 0.91 0.84 0.97 0.79 1.00

*Note: Correlation based on evaluation period of 20 months (GUSYX).

Five-year correlations

Seven of the nine funds have records of five years or more but even in this longer comparison, the same pattern holds.

Name Symbol GPIIX GPGIX GPRIX GPEIX GISYX GPMCX GGSYX
International Opportunities GPIIX 1.00 0.98 0.99 0.93 0.98 0.96 0.97
Global Opportunities GPGIX 0.98 1.00 0.99 0.92 0.97 0.96 0.98
Global Reach GPRIX 0.99 0.99 1.00 0.93 0.98 0.96 0.98
Emerging Markets Opportunities GPEIX 0.93 0.92 0.93 1.00 0.92 0.91 0.90
International Stalwarts GISYX 0.98 0.97 0.98 0.92 1.00 0.92 0.98
Global Micro Cap GPMCX 0.96 0.96 0.96 0.91 0.92 1.00 0.92
Global Stalwarts GGSYX 0.97 0.98 0.98 0.90 0.98 0.92 1.00

Here’s the simplified version.

  Range of 5-year correlations
International Opportunities 96 – 99
Global Opportunities 92 – 99
Global Reach 93 – 99
Emerging Markets Opportunities 90 – 93
International Stalwarts 92 – 98
Global Micro Cap 91 – 92
Global Stalwarts 90 – 97

The bottom line is that the funds with the global micr0- to mid-cap emphasis are individually excellent but not sufficiently differentiated to warrant the inclusion of a second fund. Two younger funds, Global Contrarian (with since inception correlations of 75-90) and US Stalwarts (with a large-cap focus and half of its correlations in the 70s and 80s), are arguable exceptions to the rule.

Global Explorer is not.

Bottom line: if you’re a long-term investor with a reasonable tolerance for short-term volatility and you don’t already own a Grandeur Peak fund, Global Explorer should go on your due diligence list. But, given the $35 million strategy capacity, plan on doing your diligence sooner than later.

The minimum initial investment in the fund is $1,000, and the expense ratio is capped at 1.25%. The fund’s homepage is understandably thin on content, but Grandeur has a richness of content across the site.

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