CEO assesses Q2 and sees great opportunity outside major indices
The move to passive investing continues apace – and that plays into the hands of dedicated small cap hunters.
David Barr, CEO of Penderfund, helped launch the Pender Small Cap Opportunities Fund in 2009 and has seen it grow to about $200 million. This year also marks the five-year anniversary of the Pender Value Fund.
In his Q2 commentary, Barr said the media’s continued love of large stocks is the perfect cover for his team as they go about unearthing “unloved” companies outside the major indices.
He also said that after the return of volatility in Q1, Q2 was a return to market complacency, lower volatility and stocks going up, meaning a welcome tailwind for equity portfolios.
He said: “We have seen a continuation in the trend of large stocks dominating headlines and market cap-weighted indices outperforming equal weighted indices. This is wonderful for us. Not only does it provide us with our usual small cap hunting grounds of unloved or uncovered companies outside the major indices, it creates opportunities for us in those companies that are in the bottom half of a major index.”
Barr also believes that while many advisors are telling investors that they need more active management with volatility now a genuine issue, the continued popularity of passive will benefit the likes of Pender if - or when - the market takes a nosedive.
“The move to passive investing is alive and well,” he said, “and it continues to create distortions that, quite frankly, create more opportunities for active management over the long term. While the pendulum is currently swinging in the direction of passive investing, we all know what happens when the pendulum swings the other way.”
Barr stressed his company’s focus on the long term compounding of capital and how its “primary hunting ground” remains common stocks of companies with the characteristics to do that. Going forward, this will include a shift towards energy after the addition of Amar Pandya to the team.
He said: “We are also happy to be opportunistic when the situation warrants and these ‘close the discount’ companies require very close scrutiny and oversight. Energy has been a very small part of what we’ve done historically but has increased recently with an addition to the team.”
He added: “Additionally, going up the cap structure and participating in the debt side when we can get equity-like returns has been a sensible part of our strategy. As we all know, rear view investing is not a successful strategy. Past performance is not an indicator of future performance. We couldn’t agree more. Safe to say, the Pender investment team will continue to focus on the long term, the underlying businesses and buying them at the right price.”