What are we looking for?
What the pros are buying.
Checking out the top holdings in their funds is a way to get investment ideas or to research a fund. Today, we look at Ethical Special Equity at NEI Investments' website.
More about the fund
The $308.5-million Canadian small-mid cap equity fund is co-managed by Ian Cooke and Joe Jugovic at Calgary-based QV Investors Inc. The fund gained 3.2 per cent for the year ended March 31 versus an 11-per-cent loss for BMO Nesbitt Burns Canadian Small Cap Index. Over 10 years, the fund has returned an annualized 10.4 per cent.
The value-oriented managers look for companies with strong management teams running sustainable businesses. The holdings must also meet socially responsible criteria. (The Ethical-branded funds avoid companies involved in tobacco, military equipment, nuclear energy, etc.)
Mr. Cooke is "not overly bullish" on the small-cap sector now because these stocks are generally more expensive than their North American large-cap cousins. "It's not like the situation after the tech bubble in early 2000 when the small-cap market was glaringly cheap, but we are still able to find a number of different gems," he said.
What did we find?
An eclectic mix of names – from banks to a packaging company and a food processor.
Winpak Ltd., a North American packaging leader focused on food and pharmaceuticals, still has more upside despite its double-digit gain over the past year, Mr. Cooke said. The company, which has no debt and a war chest of about $125-million, generated revenue of $650-million last year, and has a clear plan targeting $1-billion in sales over the next three years, he added.
The manager is also a fan of Canadian Western Bank, which has generated double-digit loan growth in 21 of the past 22 years. Book value per share, earnings per share and dividend growth have also been compounding at a double-digit rate over the past five years, he said.
Maple Leaf Foods Inc., whose stock trades close to its 52-week high, has a leading market share in grocery stores through its line of brand-name meats, pasta (Olivieri) and bread (Dempster's), he said. "The company is moving to simplifying their business, and we think that is going to unlock a lot of profitability."