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Pender Value: A rare small-cap find

This fund's experienced manager knows how to navigate the tricky terrain of small stocks.

Christopher Davis 30 March, 2017 | 5:00PM
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Small caps are fertile ground for active managers. Unfortunately, investors will find few funds that are successful, nimble enough to invest in smaller companies, and still open to new investments. One exception is Pender Value, which we recently added to our coverage with an Analyst Rating of Silver.

No matter how you slice it, this young fund has been an impressive performer: It’s up 21% annually since its 2013 launch. That’s nearly double the category average. Manager Dave Barr has delivered nearly identical results since 2009 at a sibling offering focused on micro-cap stocks.

Barr holds fewer tiny names at Pender Value, but he still favours far smaller companies than his rivals. Most holdings have limited institutional ownership and analyst coverage. Because these stocks aren’t closely followed, they’re more likely to be undervalued.

To be sure, this hunting ground is prone to high volatility and uncertain fundamentals. But Barr’s background allows him to navigate this terrain well. His experience as a venture capitalist honed his ability to assess managements, business models, and industry dynamics. Barr marries this expertise with careful risk management. He values companies conservatively and buys them at a discount to what he thinks they’re worth. Barr also carefully sizes positions to minimize the possibility of loss.

Not only has this approach served the fund well so far, its success is sustainable. With a slim $172 million asset base and a pledge to close the fund at reasonable levels, Barr should remain as agile as he’s been from the get-go. A reasonable expense ratio is another competitive advantage.

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About Author

Christopher Davis

Christopher Davis  Christopher Davis is Director of Manager Research at Morningstar Canada.

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