She could see it coming

The manager of one of the best performing Canadian equity funds over the past year was not in the least bit surprised by the Canadian market’s resurgence. Veronika Hirsch, manager of the two-year old Hirsch Canadian Growth fund, could see it coming. She jumped on the bandwagon early and placed number three among non-segregated Canadian equity funds with a 45.9 per cent return for one year as of January 31.

"I started getting bullish on the Canadian market early last year when I saw all the redemptions," she recalls. "I said, ‘why are people doing this?’ It started me thinking." The Canadian dollar was doing well against most world currencies and a move towards higher commodity prices helped the economy so that gave Veronika the conviction that the growth in the Canadian economy will translate into gains at the stock market. "The signs foretold the story," she says. "The domestic economy was finally doing well and people finally felt they don’t live in a recession."

Veronika invests by positioning herself in all the industries that were in favour in Canada. "I don’t pay much attention to the TSE index weightings," she says. "I’m very happy not to be in certain sectors if they are not performing." Veronika follows the right themes and invests to her advantage. "I’m very good at following a trend and picking the right stocks to fit that trend," she says. Luckily, her portfolio is small and that allows her to turn it around quickly, with more agility than is possible with larger funds.

"I could see that Canada had the smallest proportion of large cap stocks in any market in the world," she notes. "We have very few world class names." Veronika expects Canada to catch up, with mergers and strategic alliances paving the way. "It occurred to me that all this has to happen if we’re to survive. I was right on all fronts."

Another theme Veronika identified is the mismatch between valuations of similar Canadian and U.S. stocks. "All our new economy stocks are trading at a discount of 25 to 50 per cent relative to the states," she says. "My theme is that we’ll partially catch up." Veronika maintains that there is no reason why Canadian companies should be so undervalued. "With NAFTA there are no barriers and no reason why Canadian companies can’t do well." They also have cheaper costs with the Canadian dollar and can receive U.S. dollars in revenue.

Veronika also follows the world trends and patiently watches them come into fruition in Canada. Like wireless: "it was so depressed relative to the U.S.," she says. "You didn’t have to be a visionary to predict it, you could see the merger and acquisition activity taking place in Europe and the U.S."

Veronika still likes many of the wireless stocks like Research In Motion and Sierra Wireless . "One of the cheapest names out there is Telesystem International Wireless," she claims. "They’re rolling out wireless systems in European countries and recently have secured the financial backing they had been lacking."

Business to business is another trend that Veronika watches. "I can see another two years of incredible growth before the industry is saturated and new entrants can’t get in." One of her favourite companies, Descartes Systems Group, provides software that handles the delivery logistics and optimal scheduling for companies that deliver products or services.

Levi Folk, Richard Webb and Peter Diplaros are Investment.com mutual fund specialists and editors of the Fund Counsel newsletter. They can be reached by e-mail at peterd@hqinvestment.com.