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The January effect: Small was beautiful

swon@globeandmail.com

What are we looking for?

Canadian small- and mid-cap equity funds that benefited from the tendency of stocks to rise in the first month of the year. This "January effect" is usually strongest among small-caps, which tend to rally after year-end selling for tax-loss purposes, especially in cases where funds dump them to "window dress" portfolios by getting rid of laggards.

The screen

We ranked the top-performing funds in January in the Canadian small-to-mid cap equity category. We excluded U.S. dollar, segregated and duplicate versions of the funds. We also left out funds closed to new investors, and those that require an investment of more than $100,000.

What did we find?

Small was beautiful in January.

Three funds outpaced the robust 8.9-per-cent gain by the S&P/TSX Small Cap Total Return Index.

Norrep II Class gained 9.9 per cent; AlphaNorth Growth, 9.3 per cent and Sprott All Cap, 9.2 per cent.

Norrep II got a lift from the takeover of one of its holdings, semiconductor maker Gennum Corp. by U.S.-based Semtech Corp. Semtech came in with an offer that was more than a 100-per-cent premium to Gennum's last closing price, said Alex Sasso, a portfolio manager with Hesperian Capital Management Ltd., which runs the Norrep funds.

Another holding, Ithaca Energy Ltd., also benefited from takeover speculation after the oil and gas explorer was approached with a confidential offer from a unidentified buyer, he said. Cline Mining, Labrador Iron Mines and Celestica were names that rebounded, while Linamar also benefited from industry data indicating a "reacceleration in auto sales."

Stocks of cyclicals like trucking firm TransForce and technology services provider Softchoice also rose as market sentiment turned more positive about an improving economy, Mr. Sasso said. "We are at a point of the business cycle where the economy is coming out of a funk. ... That is when small caps shine."

AlphaNorth Growth benefited from a nearly 60-per-cent weighting in the top-performing materials sector last month, said Steven Palmer, portfolio manager at AlphaNorth Asset Management Inc. Lundin Mining, Avalon Rare Minerals, Cline Mining, and Western Potash were names that contributed to performance.

Sprott All Cap Fund, which is co-managed by Charles Oliver and Jamie Horvat at Sprott Asset Management, got help from an 11-per-cent rally in the price of gold bullion. The metal was 24 per cent of the fund in December, while cash hovered in the 22-per-cent range.

*****

HOW CANADIAN SMALL TO MID CAP EQUITY FUNDS FARED IN JANUARY

AssetsYTDCalendar year returnsTo Jan. 31, 2012
FundMER($ mil.)(To Jan. 31, 2012)20112010200920081 year3 years5 years
Norrep II Class-A*5.73155.19.87% -7.89%31.40%60.51%-52.05% -1.32%29.86%3.31%
AlphaNorth Growth Fund Series A*n/a8.99.27%
Sprott All Cap*3.6014.99.16%-19.18%30.78%18.73%-8.61%10.77%
iShares S&P/TSX SmallCap Index0.55138.68.79%-16.62%34.37%61.06%-45.38%-8.61%25.18%
First Trust Rayomd James Cdn. Focus Picks*2.4725.78.50%-28.24%59.44%127.50%-21.49%42.62%
TD Cdn Small-Cap Equity2.55427.28.42%-16.69%34.96%59.88%-38.97%-11.80%25.38%3.40%
Norrep Entrepreneurs Cl-A*5.431.68.30%-2.01%0.04%
Manulife Growth Opportunities Fund2.70672.17.90%-15.77%29.27%57.64%-40.50%-10.68%23.78%2.40%
Acuity Canadian Small Cap3.0572.17.80%-25.24%38.64%71.86%-58.97%-17.53%22.63%-2.98%
Manulife Growth Opportunities Class2.7655.77.79%-15.91%28.96%56.36%-39.78%-10.93%23.24%2.44%
CI Alpine Growth Equity2.4159.07.74%-15.50%30.13%59.64%-41.41%-10.59%24.60%2.55%
Pender Small Cap Opportunities2.500.37.68%4.66%22.85%11.66%
Beutel Goodman Small Cap-D1.84509.87.53%-12.38%32.33%62.31%-29.04%-7.63%27.04%7.45%
Investors Canadian Small-Cap-A2.72644.87.43%-13.57%30.77%62.77%-43.24%-7.01%26.22%4.98%
Scotia Canadian Small Cap2.4755.67.43%-18.06%20.98%78.31%-47.89%-11.93%23.76%-0.62%
S&P/TSX Small Cap Total Return8.87%-16.43%35.10%62.38%-50.04%-8.37%25.87%-0.27%
S&P/TSX Total Return4.37%-8.71%17.61%35.06%-33.00%-5.65%15.97%1.94%
*Can charge performance fees on top of MER. Source: Globe Investor, Bloomberg, companies

© 2007 The Globe and Mail. All rights reserved.

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