January 27, 2014

Manager’s Quarterly Commentary – David Barr – Q4 2013 – Pender Value Fund

Written by David Barr

We have our first two quarters under our belt and things have progressed nicely for the Fund. Units that were initially priced at $10.00 were valued at $12.18 at December 31, 2013.

In building out the portfolio, we currently have 27 investments in the Fund. The portfolio consists of 16 companies that are in the Pender Small Cap Opportunities Fund, seven in the Pender US All Cap Equity Fund and four investments unique to the Fund.  We expect this to evolve over time so the portfolio will constitute approximately 1/3 of each, however we won’t be tied to this constraint and will always be investing in the best ideas for the mandate.

On the geographical front, the portfolio is 48% Canadian, 32% US and 20% Cash.

Most of the Fund’s holdings are in common stock but occasionally a more leveraged opportunity presents itself that still has an appropriate margin of safely. We were able to draw on our experience in restructuring situations during this period with the purchase of warrants of Imvescor Restaurant Group Inc (TSX: IRG), a national restaurant franchise company operating several brands in Eastern Canada (for example Pizza Delight and Baton Rouge). In the fall of 2011, the company underwent an aggressive refinancing and recapitalization. As part of that event, it issued convertible debentures with warrants. Fast forward to the summer of 2013 and the company had progressed very well with its restructuring. Our analysis gave us the comfort that any potential “catastrophic” risk was minimized so we continued to dig in. While some people may view investing in warrants as higher risk, in a situation like this the risk is comparable to that of holding the common stock while providing a better potential return profile.

IRG is a great example of the flexibility of the Pender Value Fund and we are continually looking for other such interesting opportunities to invest in.

David Barr
January 13, 2014

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in net asset value and assume reinvestment of all distributions and are net of all management and administrative fees, but do not take into account sales, redemption or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. This communication is intended for information purposes only and does not constitute an offer to buy or sell our products or services nor is it intended as investment and/or financial advice on any subject matter and is provided for your information only. Every effort has been made to ensure the accuracy of its contents.

© Copyright PenderFund Capital Management Ltd. All rights reserved.  January 13, 2014.

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