Manager’s Quarterly Commentary – David Barr – Q4 2014 – Pender Value Fund
Our Fund ended the year with an excellent quarter. It was up 13.85%1 compared to 5.48% for the benchmark2. Again, the performance of the Fund was largely driven by the performance of key holdings including Nobilis Health (TSX: NHC), CRH Medical (TSX: CRH) and Absolute Software (TSX: ABT), with the assistance of one announced takeover in the quarter, Glentel (TSX: GLN). Also assisting our relative performance was our underweight position in Energy which had a fairly violent downturn in the quarter. For the year, the Fund was up 27.71% compared to 19.63% for the benchmark. Since inception3 the Fund has had an annualized return of 34.72%, compared to 37.16% for the benchmark.
As a marginal hockey player there haven’t been too many hat tricks in a long career of men’s league hockey. Occasionally the Fund experiences a “Hat Trick” of sorts with three significant value creation events.
1. In October, Glentel announced it was to be acquired by Bell, for $26.50per share, a 98.7% premium to our purchase price.
Then in December we had back-to-back transformative transactions in two of our largest holdings.
2. First, Nobilis Health announced the acquisition of Athas Health which potentially adds US$60 million to the company’s top line and should really signal to the market that this company has serious growth potential.
3. Second, CRH Medical announced the acquisition of Gastroenterology Anesthesia Associates transforming the company into a proforma $33 million revenue $18 million EBITDA business, and the market responded as the share price increased to $1.96 (December 31, 2014).
While we are always trying to score a “Hat trick”, we do recognize that luck can sometimes play a part in the outcome. We don’t expect to have many quarters like the one we just had, but we will continue to invest the same way and try to stack the probabilities in our favour so we can celebrate another one in the future. As for a hat trick on the ice, I’m going to have to get VERY lucky.
We tactically deployed cash in the quarter. At the beginning of the quarter we were at 22.45%. When markets turned down dramatically in October, we decreased our cash weighing to below 15% before it returned to 17.59% on October 31. The downturn enabled us to establish four new positions and actively increase six positions. We closed out our position in Liberty Interactive as it spun out subsidiary businesses and our return parameters were met. By year end we moved the cash position in the Fund up to 23.03%, approximately the average cash weighting we’ve had since inception. If volatility picks up again, we are ready and willing to move on new opportunities.
On the geographical front, the portfolio is 62.25% Canadian, 37.75% US and 23.03% Cash.