Small-Cap Equity Fund Commentary

Market Overview

The small-cap market fell 14.4% in 2011, as measured by the BMO Small Cap Index. Mining-related stocks suffered large price declines, and the oil & gas sector also lost ground. The financial and utility sectors were the only areas of the market that advanced.
The more broadly-diversified U.S. small-cap market dropped roughly 4%, as measured by the Russell 2000 Index.

Portfolio Specifics (2011)

The portfolio prospered in what was a rough year for the small cap market and commodity-related stocks in particular. The fund has modest exposure to the mining sector, which was an important factor in its divergent performance.
In contrast to the market, the fund’s energy holdings were among its top performers. Coastal Energy more than doubled in price while Total Energy Services, Pacific Rubiales (sold) and Parkland Fuel were key contributors.
Alaris Royalty Corp., Canadian Helicopters and Hibbett Sports were holdings that performed particularly well. Alaris was sold and Canadian Helicopters and Hibbett were trimmed but remain core holdings.
The manager, Wil Wutherich, still feels good about valuations. The fund’s holdings continue to generate strong cash flows, in many instances pay high dividends, and trade at below-average price-to-earnings multiples.
Easyhome was the biggest disappointment. The stock has not recovered from an embarrassing fraud incident last year. It was sold prior to several board members resigning late in the year. Evertz Technologies and Glacier Media were also weak performers, but their fundamentals remain strong.
The cash position is high (12%) with the sale of Easyhome and Alaris. In a choppy market, the manager will pick his spots to redeploy it.

Notable Transactions (Fourth Quarter)

Parkland Fuel was purchased. Parkland is Canada’s largest independent fuel supplier. It has a history of generating strong earnings, making smart acquisitions, and paying an attractive dividend (currently 8%).
Positions in Evertz, Glacier Media and MacDonald Dettwiler were increased. Alaris and Easyhome were sold, as mentioned.

Positioning

The portfolio remains highly concentrated, yet more broadly diversified than the resource-heavy small-cap market.
Industrial, consumer-related, energy and technology companies are key areas of focus.

Learn more about the manager's background, investing style, and the Small-Cap Fund (high-speed internet connection required).