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Searching for value in small caps Add to ...

What are we looking for?

What the pros are buying.

Checking out the top holdings in their funds is a way to get some investment ideas or research a fund. Today, we look at Trimark Canadian Small Companies Fund at invesco.ca.

More about the fund

Jason Whiting, a portfolio manager with Invesco Canada Ltd., took over the $240-million Canadian focused small-to-mid cap equity fund in April, 2011. He runs a concentrated portfolio of nearly 30 stocks with 45 per cent currently in foreign names.

The fund gained 4.2 per cent for the year ended April 30 versus an 8.2-per-cent loss for the S&P/TSX Completion Total Return Index, which tracks small-to-mid cap stocks.

The value-oriented manager is cautious on the small-cap sector because it has run up significantly since being crushed in the 2008 market downturn. Nonetheless he is optimistic about his own portfolio of stock picks. “You can still find 20 to 30 interesting ideas,” he said. “One new product can make a big difference for a small-cap company even if the economy does badly.”

What did we find?

Shares of a mortgage services provider gaining momentum.

Lender Processing Services Inc., which provides services to lenders for the processing of a full-cycle of a mortgage, has seen its stock surge 42 per cent this year.

There is still more upside potential in the near term because the company will benefit from rising mortgage foreclosures in the United States, Mr. Whiting suggested. “Over two million loans are in some stages of default. … Hopefully, the economy is also better in two years so people will take out new loans for houses so that the [mortgage] origination’s side picks up.”

He is also a fan of Rocky Mountain Dealerships Inc., a dealer of construction and agricultural equipment. It’s a story about improving profit margins as the firm continues to digest acquisitions in Western Canada, he said. “It doesn’t make a lot of money selling new equipment, but makes a ton of money selling parts and services associated with that equipment.”

Auto parts maker Martinrea International Inc. will also benefit from margin improvement, he said. Last year, it bought Honsel AG, a German supplier of aluminum parts that will be helped by a recovering auto industry and the trend to lighter-weight, fuel-efficient vehicles, he added.

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Top holdings in Trimark Canadian Small Companies Fund at April 30, 2012

Company Symbol Price $ (June 4) 52-week high
Martinrea International MRE-T 8.00 10.89
Newalta Corp. NAL-T 13.75 15.45
Rocky Mountain Dealerships RME-T 10.75 12.13
Lender Processing Services* LPS-N 21.44 27.15
Federated Investors* FII-N 18.75 25.15
FirstService Corp. FSV-T 26.39 36.73
Interval Leisure Group* IILG-Q 16.11 20.24
International Rectifier* IRF-N 18.49 28.71
Aastra Technologies AAH-T 16.55 21.98
Chemtrade Logist. Income Fd. CHE.UN-T 15.15 17.33

* In U.S. dollars. Source: Globe Investor, Invesco. Excludes non North American holdings and preferred shares

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