Vancouver’s PenderFund Capital Management celebrated the fifth birthday of its Small Cap Opportunities Fund on June 1st, and at an investor day gathering in downtown Vancouver last Thursday, portfolio manager Dave Barr unveiled five year returns that are accelerating.
The five year return of the fund now stands at 21.1%. That number improves to 22.68% with a three year window and a beefy 32.05% over the past year.
Regular readers of Cantech Letter will know Barr as the man who applies Ben Graham-like thinking to the world of small and mid-cap Canadian stocks, most often in the tech sector. Although he said 2013 was a a great year, Barr recently capped the fund, explaining that the focus on small cap Canadian stocks is inherently limited and might become diluted by non-core ideas if new investors were to swell its size.
The average market cap of Barr’s biggest holdings reflects what he sees as a better opportunity to capitalize on price inefficiencies that present themselves more often in smaller issuers. Kelowna’s QHR Corp. (TSXV:QHR), with a market cap of just over $58-million, is the fund’s fourth largest holding, with 4.04% of its $78-million.
Barr says he likes QHR, whose CEO Al Hildebrandt was on hand to present at the jam-packed gathering, because it has a predictable recurring revenue model, high incremental net margins and a strong balance sheet. The stock has climbed from $0.58 last June 10th to close Friday at $1.21.
The portfolio manager says that unlike large cap investing, which is characterized by much higher liquidity, a small cap investor must envision which catalysts might lead to him profitably selling a stock before jumping in. Often, says Barr, this means an outright buyout of said firm, which has happened multiple times since the fund launched in 2009. This is one reason Barr is still constantly in the hunt for new ideas, and often finds himself in unexpected places to do so, both figuratively and literally.
Barr recounted how he recently attended a small cap growth conference in Minnesota, where he asked the organizers to deliver him a list of companies that had the fewest meeting requests. “Why was I at a growth conference in the first place?”, he said rhetorically. “I’m trying to find places where there are no other value investors”.