| Fund Company | Penderfund Capital Management Ltd. |
| Fund Type | Canadian Small / Mid Cap Equity |
| Rating | $$$ |
| Style | Small Cap Value |
| Risk Level | Medium High |
| Load Status | Front End |
| RRSP/RRIF Suitability | Fair |
| TFSA Suitability | Fair |
| Manager | David Barr since June 1, 2009 |
| MER | 2.50% |
| Code | PGF 315 – Front End Units |
| Minimum Investment | $500 |
Analysis: As a whole, Canadian small caps appear to be overvalued relative to their large-cap brethren. However, there are still a number of attractive opportunities available on a company-by-company basis. David Barr looks to take advantage of the inefficiencies within the small cap market and build a portfolio of well-managed businesses that have strong competitive positions that have been overlooked by the market.
Typically, when there is no analyst coverage, share valuations tend to be lower. As the company becomes better known, valuations tend to improve, providing returns for investors. Along with a strong fundamental position, he also looks for companies that have a potential catalyst such as a merger, takeover, distressed securities, or a company that is trading below its breakup value that may drive stock prices higher in the near term.
The portfolio is very concentrated, with the top 10 names making up more than 40% of the fund. It currently holds 58% in Canadian equities, 5.4% US equities, 4% fixed income, 32% cash. Technology is the biggest sector within the fund, making up 41% of it. It has virtually no exposure to energy or materials. As a result, it will have a risk reward profile that is dramatically different from the index.
Given this, it’s no surprise to see that performance has been dramatically different from the index. In 2009 and 2010, it lagged the benchmark substantially. However, in 2011 and thus far in 2012, it has outperformed by a wide margin.
Considering our review, we expect that this fund will do well in volatile markets, but we do expect that it will experience periods of higher volatility. The fund is very small with assets of less than $2.5 million. This should allow the manager to be quite nimble in executing his strategy. As the fund grows, this flexibility will become limited, but given the low asset base, there is still significant room to grow.
Given its risk reward characteristics, we feel that it is only appropriate for investors who can stomach above average risk, as the small cap bias and concentrated portfolio are likely to result in big swings in value.
We are initiating coverage of this fund with a $$$ rating. We will need to see a longer track record before we can upgrade it to a $$$$ rating. We should also point out that this fund is only available in BC, Alberta, Saskatchewan, Manitoba, and Ontario.