What are we looking for?
Canadian small- and mid-cap equity funds that benefited from the tendency of stocks to rise in the first month of the year. This “January effect” is usually strongest among small-caps, which tend to rally after year-end selling for tax-loss purposes, especially in cases where funds dump them to “window dress” portfolios by getting rid of laggards.
The screen
We ranked the top-performing funds in January in the Canadian small-to-mid cap equity category. U.S. dollar, segregated and duplicate versions of the funds were excluded. We also left out funds closed to new investors, and requiring an investment of more than $100,000.
What did we find?
Small was beautiful in January.
Three funds outpaced the robust 8.9-per-cent gain by the S&P/TSX Small Cap Total Return Index. This benchmark more than doubled the gain of the overall Canadian stock market.
Norrep II Class gained 9.9 per cent; AlphaNorth Growth, 9.3 per cent and Sprott All Cap, 9.2 per cent.
Norrep II got a lift from the takeover of one of its holdings, semiconductor maker Gennum Corp. by U.S.-based Semtech Corp. SMTC-Q Semtech came in with an offer that was more than a 100-per-cent premium to Gennum’s last closing price, said Alex Sasso, a portfolio manager with Hesperian Capital Management Ltd., which runs the Norrep funds.
Another holding, Ithaca Energy Ltd. IAE-T, also benefited from takeover speculation after the oil and gas explorer was approached with a confidential offer from a unidentified buyer, he said. Cline Mining, Labrador Iron Mines and Celestica were names that rebounded, while Linamar also benefited from industry data indicating a “reacceleration in auto sales.”
Stocks of cyclicals like trucking firm TransForce TFI-T and technology services provider Softchoice SO-T also rose as market sentiment turned more positive about an improving economy, Mr. Sasso said. “We are at a point of the business cycle where the economy is coming out of a funk…That is when small caps shine.”
AlphaNorth Growth benefited from a nearly 60-per-cent weighting in the top-performing materials sector last month, said Steven Palmer, portfolio manager at AlphaNorth Asset Management Inc. Lundin Mining, Avalon Rare Minerals, Cline Mining, Great Western Minerals, Rockgate Capital and Western Potash were names that contributed to performance.
Sprott All Cap Fund, which is co-managed by Charles Oliver and Jamie Horvat at Sprott Asset Management, got help from an 11-per-cent rally in the price of gold bullion. The metal was 24 per cent of the fund in December, while cash hovered in the 22-per-cent range.
