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Pile of pennies (photos.com)
Pile of pennies (photos.com)

NUMBER CRUNCHER

Bissett Microcap fund shows that tiny can be terrific Add to ...

What are we looking for?

The best bang for the buck among Canadian smaller-cap funds.

Given that smaller companies are perceived to be riskier than their larger cousins, let’s see how well the best performers in this category have fared amid the gyrating markets of recent years.

The screen

We searched for the top 15 returns among Canadian small-or-mid cap equity funds for the three years ending Sept. 30. U.S. dollar, segregated and duplicate versions of the funds were excluded, as well as, those geared to accredited investors.

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What did we find?

Small can be beautiful.

The top-performing 15 funds outpaced both the broader Canadian market and small-cap indexes over the period we examined.

In keeping with the tiny-is-terrific theme, a micro-cap offering charging a hefty 3.8-per cent fee has led the pack for 11 consecutive months.

Bissett Microcap, which invests in firms with a market value below $340-million, posted an annualized 23.9-per-cent gain. It has benefited as larger companies have snapped up 15 of its holdings since 2009. “That is a very material driver of performance,” said Ralph Lindenblatt of Bissett Investment Management, who co-manages the fund with Richard Fortin.

Five of the acquisitions occurred this year, including the purchase of Pure Energy Services Ltd. and Miranda Technologies Inc. by U.S. firms. “You see a lot of cash-rich corporations starved for growth, and looking for opportunities,” Mr. Lindenblatt said.

His fund, which lost nearly 50 per cent in the 2008 market meltdown when smaller-cap names got crushed, bounced back in the subsequent two years with 50-per-cent-plus returns.

The domestic small-cap market is largely driven by the materials and energy sectors, which have lagged this year. The bright spot has been the higher-yielding or dividend-paying names. That has helped funds like Galileo High Income Plus, which returned an annualized 23.1 per cent.

Canadian small-caps have had a strong run since their lows in November, 2008, and should return to more normal returns , Mr. Lindenblatt suggested. “If you look at the long-term numbers for small caps, you typically regress to the 8-to-10-per-cent range.”

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How Canadian small-to-mid cap equity funds have fared over three years

Fund name MER Assets ($-mil) 3-yr % rtn (Sep 30) 5-yr % rtn (Sep 30) YTD % rtn (Sep 30) 2011 % rtn 2010 % rtn 2009 % rtn 2008 % rtn
Bissett Microcap-A 3.8 50.6 23.90% 7.00% 19.20% -1.70% 53.90% 55.30% -49.00%
Galileo High Income Plus 2.58 88.8 23.10% 14.00% 9.80% 8.50% 34.20% 57.80% -22.20%
Steadyhand Small-Cap Equity * 1.7 29.3 20.80% 5.00% 14.20% 12.70% 21.90% 14.60% -29.70%
Sentry Small/Mid Cap Income 2.84 278 19.80% 11.60% 12.60% 6.50% 26.30% 43.50% -22.20%
Pender Small Cap Opportunities 2.5 1.7 17.00% 23.10% 4.70% 22.80%
Sentry Diversified Inc Tr-X 1.26 546.5 17.00% 9.10% 6.70% 23.80%
Bissett Canadian High Dividend-A 2.48 420.3 16.70% 7.70% 10.30% -1.00% 30.50% 36.30% -25.30%
Dynamic Small Business 2.77 658.1 15.80% 10.10% 7.90% 1.50% 27.30% 38.80% -18.00%
Mawer New Canada *** 1.46 142.9 15.40% 5.80% 10.80% 1.10% 23.90% 51.20% -38.30%
BMO GDN Enterprise Classic *** 2.25 21.4 15.20% 5.20% 10.30% -0.50% 25.90% 49.80% -38.80%
Pembroke Canadian Growth ** 0.08 45.6 14.90% 3.00% 12.90% -4.40% 29.70% 42.50% -40.60%
HSBC Small Cap Growth-I 2.33 73.7 14.70% 3.70% 10.20% -0.80% 24.70% 50.70% -38.70%
Mackenzie Saxon Dividend Income-A 2.36 531.5 14.10% 8.30% 2.70% 22.00%
Altamira Quebec Growth 2.37 21.1 13.50% 2.50% 10.60% -0.80% 21.90% 50.60% -45.40%
Mackenzie Saxon Microcap Fund-A 3.32 15.4 12.70% 2.40% -2.90% 33.20%
S&P/TSX Total Return 5.50% 0.20% 5.40% -8.70% 17.60% 35.10% -33.00%
S&P/TSX Small Cap Total Return 8.40% -2.90% -0.20% -16.40% 35.10% 62.40% -50.00%
BMO Nesbitt Burns Cdn Small Cap Index 11.80% 2.00% 3.60% -14.20% 38.50% 75.10% -46.60%

* Requires minimum initial investment of $10,000
**Requires minimun of $150,000
***Closed to new investors
Source: Lipper

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