What are we looking for?
How equity funds that invest in smaller companies have performed in the last few years.
We screened funds in the Canadian small- to mid-cap category for the three years ended Sept. 30. U.S.-dollar, segregated, pooled, duplicate version and accredited-investor funds were excluded. Funds with minimum investments over $10,000 were also left out.
What did we find?
The high-flying tech sector propelled one fund to the top, thanks to three years of investments in the sector.
The Pender Small Cap Opportunities Fund gained an annualized 21.9 per cent in the period, and the fund has been weighted heavily toward the technology space since it was founded in 2009.
The fund's portfolio manager said technology stocks have been helped by the broader trend of money flooding back into equity investments in the last six to nine months.
"Since 2001 there hasn't been a huge initial public offering market for tech companies, and a lot of the really good companies have been bought by others," said David Barr, chief investment officer at PenderFund Capital Management. "There are fewer tech companies than there used to be, so when money comes into the market, it moves things quite dramatically," he said.
Electronic medical records company QHR Technologies Inc. is a good example of a stock that has soared in the past year. Its shares were trading below 50 cents one year ago; they closed at $1.15 on Monday.
Mr. Barr said when his fund was first created there weren't many overvalued tech companies. "I can't say that today, but I can say there are still a lot of undervalued tech companies we're looking at," he said.
Right now, he's interested in Espial Group Inc., which creates Web-based software for on-demand or smart televisions. Cable companies want to control their user experience better, Mr. Barr said, and this software can help them do that.
Pender will cap this fund in February, 2014, to "maintain the nimble nature of it," Mr. Barr said.
Other funds in the screen have placed less emphasis on technology and also managed great multi-year gains. The Franklin Bissett Microcap Fund, which came second on the screen with annualized gains of 20.9 per cent, invests heavily in sectors such as consumer discretionary and energy. These allocations account for nearly half the fund.
Editor's note: An earlier version of this article incorrectly said funds in the Canadian-focused small- to mid-cap category were included in the accompanying chart. In fact, only Canadian small- to mid-cap funds were included.