Small-Cap Equity Fund

June 30, 2021

Market Context

  • The Canadian small-cap market (S&P/TSX SmallCap Index) gained 9.2% in the second quarter. U.S. small-caps (Russell 2000 Index) rose 2.8% in Canadian dollar terms.
  • Energy and resource stocks were notable areas of strength.

Portfolio Specifics

  • The fund consists of 26 companies, ranging from very small (Waterloo Brewing) to medium-sized businesses (Cargojet). While the majority of holdings are Canadian, there are three U.S. stocks which make up 11% of the portfolio.
  • The fund turned in a modest quarter but is up nicely on the year (+14.2%). Many of the top contributors to performance in 2021 have been the more economically-sensitive companies which have benefited from the re-opening of the global economy. Examples include SNC-Lavalin (construction & engineering), Oshkosh (heavy-duty vehicles), Finning (Caterpillar dealer), and NFI Group (transit buses and coaches).
  • Spin Master and Waterloo Brewing have also seen impressive gains as parents seek to keep their kids and themselves entertained. Spin Master has been the fund’s best performer this year, up over 70%, as its lineup of toys and games such as PAW Patrol, Air Hogs, and Monster Jam continue to see strong demand. Similarly, Waterloo’s portfolio of beers and radlers have seen impressive revenue growth.
  • Infrastructure is poised to see substantial investment over the next few years as America and Canada look to upgrade roads, bridges, and public works. The fund is well exposed to the sector through investments in SNC-Lavalin, Fluor, Badger, and Finning. All four have been solid performers and have attractive growth runways.
  • Two holdings have weighed on performance this year, Torex Gold Resources and Cargojet. Torex is a gold miner which has seen its share price stumble. Gold has been out-of-favour despite its history as a store of value in uncertain and inflationary times. Cargojet is a leading air cargo provider. Its stock has taken a pause after a tremendous run. Both companies are well managed with strong fundamentals.
  • Two new stocks were purchased. MEG Energy is a company we’ve owned successfully in the past. The mid-tier oil producer stands to generate strong profits with oil trading above $60/barrel. Importantly, it’s also committed to addressing ESG issues. Pet Valu Holdings is a retailer of pet food, toys, and grooming services (its brands include Bosley’s and Tisol). We participated in the IPO of the stock (which proved to be popular) and will look to add to our holding at the right price.
  • The fund currently has a cash position of 3%.

Positioning

  • The portfolio has a unique composition, with key areas of investment being capital goods, food & beverage, consumer, and engineering services. This is in contrast to the small-cap market’s heavy focus on resource companies.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Important information about the Steadyhand funds is contained in our Simplified Prospectus. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.