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Mutual Fund News

Scouring for 'gems' in small-cap sector

swon@globeandmail.com

What are we looking for?

What the pros are buying.

Checking out the top holdings in their funds is a way to get investment ideas or to research a fund. Today, we look at Ethical Special Equity at NEI Investments' website (neiinvestments.com).

More about the fund

The $308.5-million Canadian small-mid cap equity fund is co-managed by Ian Cooke and Joe Jugovic at Calgary-based QV Investors Inc. The fund gained 3.2 per cent for the year ended March 31 versus an 11-per-cent loss for BMO Nesbitt Burns Canadian Small Cap Index. Over 10 years, the fund has returned an annualized 10.4 per cent.

The value-oriented managers look for companies with strong management teams running sustainable businesses. The holdings must also meet socially responsible criteria. (The Ethical-branded funds avoid companies involved in tobacco, military equipment, nuclear energy, etc.)

Mr. Cooke is "not overly bullish" on the small-cap sector now because these stocks are generally more expensive than their North American large-cap cousins, "but we are still able to find a number of different gems," he said.

What did we find?

An eclectic mix of names - from banks to a packaging company and a food processor.

Winpak Ltd., a North American packaging leader focused on food and pharmaceuticals, still has more upside despite its double-digit gain over the past year, Mr. Cooke said. The debt-free company generated revenue of $650-million last year, and has a clear plan targeting $1-billion in sales over the next three years, he added.

The manager is also a fan of Canadian Western Bank, which has generated double-digit loan growth in 21 of the past 22 years. Book value per share, earnings per share and dividend growth have also been compounding at a double-digit rate over the past five years, he said.

Maple Leaf Foods Inc., whose stock trades close to its 52-week high, has a leading market share in grocery stores through its line of brand-name meats, pasta (Olivieri) and bread (Dempster's), he said.

"The company is moving to simplifying their business, and we think that is going to unlock a lot of profitability."

*****

TOP HOLDINGS IN ETHICAL SPECIAL EQUITY AT MARCH 31, 2012

CompanySymbolPrice $ (April 10)52 week high $52 week low $YTD price chg. %One-year price chg. %P/E ratioYield %Market cap ($ mil.)
E-L Financial Corp.ELF-T390.00494.00325.0014.7-19.6n/a0.11,567.6
Empire Co.EMP.A-T58.2664.2452.39-1.49.411.71.53,955.9
Laurentian Bank of CanadaLB-T44.8052.4938.62-6.3-8.69.64.01,071.8
Astral MediaACM.A-T48.4748.6731.0036.628.414.42.12,686.3
AltaGas Ltd.ALA-T30.1232.6721.25-5.414.530.14.62,688.2
CCL IndustriesCCL.B-T36.3836.9927.0816.210.314.32.11,225.6
Canadian Western BankCWB-T28.6831.3524.0011.2-4.012.92.12,170.9
Maple Leaf FoodsMFI-T12.1412.6610.1812.14.320.21.31,693.7
Pason SystemsPSI-T13.1516.5311.539.6-18.812.53.01,077.0
Winpak Ltd.WPK-T14.6015.4710.8221.715.914.60.8949.0
Source: Globe Investor, companies

© 2007 The Globe and Mail. All rights reserved.

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