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Mutual Fund News

Thinking small for big returns

jnelson@globeandmail.com

What are we looking for?

How equity funds that invest in smaller companies have performed in the last few years.

Today's search

We screened funds in the Canadian small- to mid-cap and Canadian-focused small- to mid-cap categories for the three years ended Sept. 30. U.S.-dollar, segregated, pooled, duplicate version and accredited-investor funds were excluded. Funds with minimum investments over $10,000 were also left out.

What did we find?

The high-flying tech sector propelled one fund to the top, thanks to three years of investments in the sector.

The Pender Small Cap Opportunities Fund gained an annualized 21.9 per cent in the period, and the fund has been weighted heavily toward the technology space since it was founded in 2009.

The fund's portfolio manager said technology stocks have been helped by the broader trend of money flooding back into equity investments in the last six to nine months.

"Since 2001 there hasn't been a huge initial public offering market for tech companies, and a lot of the really good companies have been bought by others," said David Barr, chief investment officer at PenderFund Capital Management. "There are fewer tech companies than there used to be, so when money comes into the market, it moves things quite dramatically," he said.

Electronic medical records company QHR Technologies Inc. is a good example of a stock that has soared in the past year. Its shares were trading below 50 cents one year ago; they closed at $1.15 on Monday.

Mr. Barr said when his fund was first created there weren't many overvalued tech companies. "I can't say that today, but I can say there are still a lot of undervalued tech companies we're looking at," he said.

Right now, he's interested in Espial Group Inc., which creates Web-based software for on-demand or smart televisions. Cable companies want to control their user experience better, Mr. Barr said, and this software can help them do that.

Pender will cap this fund in February, 2014, to "maintain the nimble nature of it," Mr. Barr said.

Other funds in the screen have placed less emphasis on technology and also managed great multi-year gains. The Franklin Bissett Microcap Fund, which came second on the screen with annualized gains of 20.9 per cent, invests heavily in sectors such as consumer discretionary and energy. These allocations account for nearly half the fund.

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CANADIAN SMALL OR MID CAP EQUITY - 3-YEARS TO SEPT. 30

Fund1-yr % rtn (Sept. 30)3-yr % rtn (Sept. 30)5-yr % rtn (Sept. 30)10-yr % rtn (Sept. 30)2012 % rtn2011 % rtn2010 % rtn2009 % rtnMERAssets ($-mil)
Pender Small Cap Opportunities25.4%21.9%------31.3%4.7%22.8%---2.515.5
FT Bissett Microcap Sr A30.9%20.9%18.7%13.6%25.0%-1.7%53.9%55.3%3.7966.6
Mawer New Canada Class A34.2%19.3%17.6%14.8%16.4%1.1%23.9%51.2%1.47182.6
BMO Enterprise Fund - Classic33.4%18.6%16.8%12.0%15.6%-0.5%25.9%49.8%2.22298.8
Norrep Entrepreneurs Cl-A26.1%18.6%------22.5%-2.0%------4.937.1
HSBC Small Cap Growth-I32.2%18.2%15.7%11.7%15.4%-0.8%24.7%50.7%2.33131.6
Altamira Quebec Growth27.5%15.3%16.4%11.8%16.0%-0.8%21.9%50.6%2.5629.6
IA Clarington Cdn SmCap Srs A26.4%15.3%11.3%11.0%20.2%-3.3%13.9%29.6%2.95344.8
NEI Ethical Special Equity26.2%15.2%11.2%11.1%19.6%-2.9%13.2%29.6%2.85371.1
United Cdn Small Cap Eq Pool-W28.4%15.1%12.3%12.0%17.1%-1.8%14.9%28.2%0.2235.1
Sionna Canadian Small Cap22.8%13.7%12.6%---19.1%-6.2%19.1%42.4%2.5718.7
FT Bissett Small Cap Sr A26.0%13.4%13.3%10.2%20.9%-12.8%27.8%59.0%2.9150.8
ROI Canadian Top 30 SmCp Picks Sr A20.4%12.2%9.3%----0.3%-6.6%33.9%40.9%2.151.7
Galileo High Income Plus3.1%12.2%15.6%---7.8%8.5%34.2%57.8%2.5892.9
Norrep II Class-A21.1%11.5%10.1%11.7%8.2%-7.9%31.4%60.5%5.09151.6
S&P/TSX Small Cap Total Return2.9%-1.5%12.5%----2.2%-16.4%35.1%62.4%------
BMO Nesbitt Burns Cdn Small Cap Index3.3%1.3%16.2%7.6%24.6%-14.2%38.5%75.1%------
Source: Lipper

© 2007 The Globe and Mail. All rights reserved.

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