Not surprisingly, the fund lagged both the benchmark and its peer group in the first quarter of the year. This was because of the drag caused by the nearly 30% currently in cash. This high cash balance is the byproduct of the managers’ struggle to find opportunities that are trading at valuations they believe make them strong investment candidates. In a recent commentary, they expressed continued concern over the valuations in the U.S. small cap space, where the Russell 2000 is trading at 25 times earnings. They say their holdings are trading at a nearly 40% discount to the benchmark, making this an attractively valued portfolio.
It was recently announced that co-lead manager Rob Mikalachki was recently named the Chief Investment Officer of Invesco Canada. Invesco has assured me that this new role will not detract from his ability to continue to manage the fund as he has in the past. He is supported by Virginia Au and Jason Whiting, two very capable managers, which will help as he takes on these additional responsibilities. Another concern I have is Virginia Au has taken a leave for a few months. While I don’t expect there to be a major disruption in the fund, I will continue to watch it closely.