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Inside the Market What this analyst from a market-beating value fund has been buying and selling

Amar Pandya, senior investment analyst and associate portfolio manager at PenderFund Capital Management, in Vancouver on March 12.

Rafal Gerszak/The Globe and Mail

Amar Pandya understands why investors are so anxious right now. After the market meltdown in the fourth quarter of last year, it’s hard to trust the comeback seen so far in 2019. But instead of focusing on the market swings – and whether the upward trend will stick – Mr. Pandya and his team at Vancouver-based PenderFund Capital Management are watching smaller stocks that are largely out of the limelight.

“We are value-focused, contrarian and long-term oriented,” says Mr. Pandya, senior investment analyst and associate portfolio manager at PenderFund Capital Management Ltd., which has about $1.4-billion in assets under management. “We look at inefficient areas of the market where we aim to find an edge by seeking out smaller, out-of-favour and sometimes misunderstood companies.”

Mr. Pandya and the Pender equity team oversee about $560-million in assets, including the Pender Canadian Opportunities Fund, Pender Small Cap Opportunities Fund and the flagship Pender Value Fund.

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The flagship fund was down 5 per cent year-over-year as of Feb. 28 and has returned an average of 9.4 per cent annually over the past five years. That compares with a total return of 6.9 per cent for the S&P/TSX Composite Index over the same one-year period, as of Feb. 28, and an average increase of 5.5 per cent for the TSX over the past five years.

The Globe and Mail recently spoke to Mr. Pandya about his take on the markets, what stocks he’s been buying and selling and one he wished they owned.

What concerns are you hearing from investors today?

Market volatility is a key concern for investors. When there’s a large drawdown, as there was late last year, investors are searching for answers. They’re increasingly fearful of the start of a long-overdue bear market.

What’s your take on where the markets are heading in the short term?

We don’t know where the markets will go in the short term. Markets are generally too complex to be predicted with any real level of confidence. We try to spend our time on the companies we own or want to own. Valuations are at attractive levels right now for a number of quality Canadian companies.

What have you have been buying lately?

One company we added to was CCL Industries Inc., the world’s largest label maker, which is a long-term hold for us. We believe it has an attractive valuation at 10 times EBITDA [earnings before interest, taxes, depreciation and amortization] given its defensive business, high returns, strong free-cash-flow generation and long-term track record of superior capital allocation. It remains relatively under the radar due to the lacklustre but essential nature of the business. We like the company because it is family founded and they have a controlling stake that aligns management’s focus and strategy with long-term shareholders. It’s also an innovative company and a key partner in the global consumer goods industry.

Another company we own and added to is Winpak Ltd., a packaging company with a similar thesis. It’s has a long-term track record of superior capital allocation and strong alignment between management and the shareholder base of the company.

What are you selling?

Generally, when the markets are experiencing large drawdowns we tend to be buying, not selling. Where we have been reducing our exposure is to more cyclically exposed companies. An example of a company we’ve sold and no longer own is AutoCanada Inc. [which operates auto franchises]. It’s around the theme of moving away from companies exposed to the consumer credit cycle.

Name at least one stock you wish you bought:

We wish we had bought [air cargo company] Cargojet Inc. It has a lot of the attributes we look for, including being founder-led with a strong alignment between management and the company. The company is benefiting from the shift towards e-commerce. The valuation has been high on this name. They recently expanded in the United States and Mexico, which may lead to some challenges. We are watching them closely to see if an opportunity for us to get into the stock presents itself.

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What advice do you have for people seeking to reach high-net-worth status?

I can only tell you how we do it. Our goal is to help protect and grow wealth for investors over time. We achieve this by seeking to understand the quality of the businesses we own. When we invest, we see it as buying into a business versus buying into a stock. We take a long-term approach.

This interview has been edited and condensed.

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