What are we looking for?
What the fund pros are buying.
It pays to take a look at the top holdings of small-cap managers to unearth stocks that may not be on most investors' radar screens. You might find some companies that could prove to be gems. Today, we look at Mackenzie Ivy Enterprise Fund at mackenziefinancial.com.
More about the fund
The $123.3-million North American equity fund has been run since 2000 by Stephanie Griffiths of Mackenzie Financial Corp. Formerly a Canadian small-cap fund, the mandate was expanded to include the U.S. market in 2006.
The fund gained 10.5 per cent for the year ended Aug. 31 compared with 9.1 per cent for the MSCI North American Index in Canadian dollars. Over 10 years, it returned 5 per cent annually versus 4.1 per cent for that index.
Mackenzie Ivy Enterprise, which typically holds 25 and 30 stocks, aims to own firms with strong balance sheets, a strong market position, above-average margins, and that can grow in any economic environment, said Ms. Griffiths.
The fund has about a 30-per-cent weighting in health-care sector companies, ranging from a provider of medical transcripts to a distributor of medical, veterinary and dental supplies. "The underlying companies have very little to do with each other," said the manager, who looks for growth stocks trading at reasonable prices.
What did we find?
A U.S. pawn-shop operator emerging as a gem this year with about a 58.5-per-cent gain.
First Cash Financial Services Inc., which operates more than 570 pawnshops mostly in Mexico as well as in the United States, is "a great business because it is totally secured lending," Ms. Griffiths said. The shops offer small loans that are secured by personal property such as electronics, tools and jewellery, and then sells those items if the customers can't repay this debt.
"It has been growing like crazy, and has been very profitable," she said. "They have almost no debt on their balance sheet, and their return on equity is 20-per-cent plus.… It's attractive because, regardless of whether Greece defaults, people are still going to be pawning their televisions."
U.S.-based medical transcription provider Transcend Services Inc. also has more potential because more hospitals are outsourcing the transcription of voice-recorded medical records by physicians, she said. "They provide a service that helps hospitals save money, and [the company] has the highest margins in the business," she said. Transcend Services also has high customer satisfaction with 99 per cent of clients renewing contracts, she added.
Winnipeg-based food packaging supplier Winpak Ltd., which has plants across North America, is an attractive high-growth company because it makes innovative, higher-margin niche products, she said. The U.S. market makes up 78 per cent of revenues. "From 2004 to 2010, the top line has grown 7 per cent compounded annually." While Winpak is affected by rising raw material costs like oil, it can pass on price hikes to its customers because of clauses negotiated in over half of its contracts, she added.