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Mutual Fund News

Seeking top picks of a small-cap fund

swon@globeandmail.com

WHAT ARE WE LOOKING FOR?

What the pros are snapping up.

It's worth checking out the top holdings of a mutual fund to get stock ideas for further research, or as part of your due diligence when considering the fund itself.

You can find the top securities on a fund company's website. Today, we look at Scotia Canadian Small Cap Fund at scotiabank.com/funds/prices.html.

ABOUT THE FUND

The $77.3-million Canadian small-to-mid-cap fund has been run by David Whetham of Scotia Asset Management since 2004. It gained 80.9 per cent for the year ended March 31 versus 85.6 per cent for the Nesbitt Burns Small Cap Index. Over five years, it has an annualized 5.2-per-cent return.

Despite the runup in small-cap stocks, Mr. Whetham is still positive on the sector, and suggested that companies are still reasonably valued.

The big one-year gain in the index reflects the sharp rebound in small caps after they were creamed during the market collapse, but the two-year annualized return is "basically flat at 2.6 per cent," he said.

The manager is also upbeat on the resource sector, which comprises 54 per cent of the index. "We are continuing to see a strong oil market," he said. "Metals markets are doing well because of demand from China and stronger demand from Western economies."

WHAT DID WE FIND?

A diverse mix of stocks, with six posting robust double-digit gains so far this year.

Among stocks that have not had a big move yet this year is Aastra Technologies Ltd., a telecommunications equipment company with strong market share in Europe.

The company may, however, benefit from a revaluing of its stock as it trades at a discount to Mitel Networks Corp., a similar firm that is planning to go public, Mr. Whetham said.

Aastra is making a lot of money and has a stronger balance sheet compared with Mitel, he said. "The Mitel IPO will draw some attention to that, and get it [Aastra] revalued up to trade at a higher multiple, which could give you a pretty good return."

Top holdings include Atrium Innovations Inc., a consolidator in the North American high-quality health and nutrition supplement business.

The stock of Atrium, which sells its premium-priced supplements through recommendations from doctors and nutritionists, also has not had a big move this year. But it is inexpensive, trading at less than 10 times 2010 profit estimates, he said.

"It is a bit of demographic play. As people get older, they are concerned about their health and are more willing to spend more money on vitamins and things that will make them feel better."

While shares of Canadian oil and gas explorer Bankers Petroleum Ltd. have already had a "huge run," this company still has good growth potential with little risk, he said.

Bankers Petroleum is developing an existing heavy oil field in Albania by using Western technology and increasing production significantly.

"It not like a lot of smaller companies where they are finding new pools [of oil] and developing them," he said. "These guys know the oil is there. It is just a question of spending the money to apply the techniques to get it out."

***

Top 10 holdings for Scotia Canadian Small Cap Fund to Mar. 31
Company nameSymbol$ Price (Apr. 19)52-wk high $52-wk low $YTD % price chg% YieldP/EMarket cap. ($-mil)Volume
West Energy Ltd.WTL-T4.955.361.9626.90.0n/a407.2723,641
Aastra TechnologiesAAH-T35.8036.9920.203.32.210.8495.980,462
Atrium InnovationsATB-T16.2017.9811.452.80.010.2529.022,617
Bankers PetroleumBNK-T8.599.741.5738.10.0n/a1,960.91,646,628
Canam Group IncCAM-T9.359.815.9031.11.720.3424.217,195
New Flyer Industries Inc.NFI.UN-T11.4311.487.3213.710.211.3540.9140,535
Le ChateauCTU.A-T14.1014.529.003.35.011.5345.91,300
Equitable GroupETC-T25.2525.8212.2518.81.67.5376.35,440
Galleon EnergyGO-T6.978.353.5132.30.0n/a593.1250,002
Home Capital GroupHCG-T43.5544.6925.764.11.510.41,511.8119,001
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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