July 22, 2015

Manager’s Quarterly Commentary – David Barr – Q2 2015 – Pender Value Fund

Written by David Barr

The end of June was the two year anniversary of the Fund’s inception.  We would like to thank all our fellow investors who have participated with us in the early years of this Fund.  We are pleased with the success of the Fund to date, but recognize that strong equity markets and strengthening US Dollar have provided a nice tailwind.  When things are going well we always lean towards caution and this is demonstrated in our cash weighting. The Fund has varied between 10-40% cash on hand and currently sits at 35%.  When we see a table pounder, we act. Right now, it’s fairly quiet in the dining room.

With that backdrop the Fund has returned 29.20%1 since inception compared to 20.14%2 for the benchmark.  During the last quarter, the general market saw some volatility and the benchmark returned negative 1.28%2. In comparison, the Pender Value Fund was only slightly down over the past three months, with a return of negative 0.18%1.

1 Refers to Class A units of the Fund.
2 Blended benchmark of 50% S&P/TSX and 50% S&P500 CAD

Portfolio Attribution

The top three positive contributors were Nobilis Health Corp., American International Group and Currency Exchange International. Apollo Education Group, Terago Inc. and POSCO had the largest negative contribution over the quarter.

Unfortunately we took some hits in the quarter too. Apollo was the largest negative contributor as the company reported poor enrollments, however we believe this is already more than accounted for in the current share price, which is at a significant discount to intrinsic value. Terago made a nice acquisition that increased the percentage of their business from data centers and cloud servicing, but it then fumbled the associated financing which created short term pressure on the stock price.

Portfolio Updates

Contrary to popular belief, increased volatility in the general markets is not always a cause for concern. As an opportunistic manager we see volatility as a market force that enables us to provide value. It means we can purchase positions in companies that fall below our determination of intrinsic value as well as selling off positions that may have risen above their intrinsic value. As such, we were quite active during the quarter, initiating four new positions and exiting another eight positions. Cash remained steady at 35% of the portfolio while our US exposure increased slightly to 32% vs. 29% at the end of the last quarter.

David Barr
July 2015

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