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Small-cap manager's low-cost strategy paying off

Backs health care, technology choices

INVESTMENT REPORTER

The health care sector has been unkind to investors the last few years, but fund manager Roger Dent thinks that is changing.

Mr. Dent is the manager of the Mavrix Strategic Small Cap Fund and two other Mavrix funds. The $8.9-million small-cap fund is already up 17.53 per cent in 2006, which follows on a 44.98-per-cent return in the 12 months in 2005, a 42.7-per-cent average annual return over three years and 2.76 per cent annualized over five years. He has been involved with the fund for sophisticated investors, since the beginning of 2003.

In selecting stocks, Mr. Dent looks for micro-cap and small-cap companies that haven't been discovered by the market, but should, in his view, garner greater investor attention in the near future. "We like inexpensive stocks where we see a catalyst in the near term that we think will attract more investor attention and provide an improved valuation on our investment," he said.

The Mavrix Strategic Small Cap Fund is focusing on a number of areas, including industrial products, technology and health care. The fund did particularly well with health care stocks last month.

"I think what is starting to happen is that people are realizing that these stocks are very inexpensive," Mr. Dent said.

The sector also stands to benefit from what he sees as an increased willingness on the part of investors to consider new areas of investment.

The fund is underweighted in resource stocks. The resource stocks he does have tend to be what he describes as "off the beaten track" issues. "Some of the resource areas are getting to be more thoroughly picked over," he said. An additional factor is that Mr. Dent was formerly a special situations analyst and in that capacity, he didn't focus on resource issues.

Mr. Dent recently bolstered the fund's holding in Precision Assessment Technology Corp. The Vancouver-based firm provides environmental drilling services to owners of contaminated real estate. "We think the stock is inexpensive in the context of its trailing earnings," he said. Precision Assessment's shares closed at 29 cents yesterday on the Toronto Stock Exchange.

Mr. Dent also added to the fund's holding in Atlantis Systems Corp., a company that makes simulation-based training systems for airline and air force personnel and manufactures and installs traffic surveillance and management systems. The Brampton, Ont.-based company was showing rising profits before it signed a contract to provide training services to the Canadian military, Mr. Dent said. The contract is expected to generate approximately $100-million in revenue for Atlantis over a 22-year period. "We expect the contract to have a very meaningful impact on earnings" in the fourth quarter of 2005 and in 2006, he added. Atlantis shares are currently trading at 59 cents.

Peer 1 Network Enterprises Inc. is another of the fund's large holdings. Vancouver-based Peer 1 provides Internet infrastructure services. The company has been growing strongly internally and through acquisition, Mr. Dent said. Its "most recent and most important" takeover was of the dedicated server assets of Interland Inc., a provider of websites and on-line services. The acquisition occurred late in the first quarter of the current fiscal year, leading Mr. Dent to believe that revenue will show a dramatic increase in the next quarter, which in turn will attract attention to the stock. The shares closed yesterday at 55 cents.

Micro manager

In selecting stocks, Roger Dent looks for micro-cap and small-cap companies that haven't been discovered by the market, but should, in his view, garner greater investor attention in the near future.

CATEGORYCanadian small-cap
TOTAL ASSETS$8.9-million
MANAGEMENT EXPENSE RATIO1.9%
GLOBEFUND 5-STAR RATING SYSTEM*****

Returns to Dec. 30, 2005

6-month compound annual22.10%
1-year simple rate of return45
3-year compound annual42.7

Top 10 holdings As of Dec. 30, 2005

1Calibre Energy11.10%
2Peer 1 Network4.8
3Commercial Solutions3.9
4Hudbay Minerals3.9
5Ur-Energy3.2
6Hammond Power Solutions3.1
7Vaaldiam Resources3.1
8Atlantis Systems3
9Omni-Life Industries Canada2.7
10Precision Assesment Tech.2.7

SOURCE: GLOBEFUND.COM

© 2007 The Globe and Mail. All rights reserved.

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