What are we looking for?
Every quarter, we check out what stocks some mutual fund managers have been buying.
The top holdings, which some funds reveal after every month or at least quarterly, can be a source of investment ideas for your own portfolio.
This week, we focus on Canadian smaller-company funds because they own stocks that may not be widely followed, and offer better potential gains. Today, we examine Bissett Small Cap Fund.
More about the fund
The $650-million Canadian small- or mid-capitalization equity fund has been run since late 2007 by Ralph Lindenblatt of Calgary-based Bissett Investment Management. He looks for growth stocks trading at reasonable prices.
The fund rose 26.6 per cent for the six months ended June 30, compared with 27.5 per cent for the BMO Nesbitt Canadian Small Cap Index. Over one year, the fund lost 27.5 per cent compared with a 30.5-per-cent loss for that index.
What did we turn up?
The fund is 31-per-cent invested in the energy sector. Energy stocks were hit hard last year as oil prices plunged, but there has been a rebound in the commodity price and stocks in this sector.
Mr. Lindenblatt is bullish on the energy sector, saying that certain businesses have "very favourable tailwinds," attractive valuations and experienced management teams. "We see a long runway for increasing demand in energy commodities," he says.
A long-time favourite in the fund has been Mullen Group Ltd. , a provider of services - such as moving rigs - to the oil and gas industry. About 30 per cent of its business comes from conventional trucking.
The firm has been growing through acquisitions. "Mullen is one of the beneficiaries of the current distress in energy services, and we definitely expect it will take advantage of that in the coming quarters," Mr. Lindenblatt says.
Another top holding is Flint Energy Services Ltd., a diversified energy services company. One big business has been to provide infrastructure services to the oil sands industry.
The pullback in capital projects by energy producers has had some impact on Flint, but there are some "signs of resumption of capital spending again" and Flint will be a beneficiary, he says.
Auto parts maker Linamar Corp. is among the non-energy holdings. While the market was worried about the sustainability of its business model given the financial woes of the big North American auto makers, it overreacted and punished Linamar's shares sharply, he says.
"A lot of the concerns with respect to the balance sheet were probably overblown," Mr. Lindenblatt argues.
The long-term prospects for Linamar look favourable because the restructuring by the auto makers will provide additional work for parts makers.
Linamar's business is not only diversified in terms of serving auto and truck manufacturers, but it also has exposure to the industrial equipment market, he says. "On a full cycle basis [industrial equipment] it is a very profitable market."