David Barr, PenderFund Capital Management Ltd. | BCBusiness
Investors have never faced more confounding markets: stocks defied traditional wisdom last year by soaring despite sluggish economic growth, and interest hovered near zero— for yet another year. To help make sense of the options available to investors today, we turned to local experts for some definitive direction
Chief Investment Officer, PenderFund Capital Management Ltd.
Look for Canadian small-cap value, think long-term
One-year return, Pender Small Cap Opportunities Fund: 27.12%
Value investor David Barr focuses on bottom-up stock analysis with his $43-million Pender Small Cap Opportunities Fund; his research involves meeting with company management and understanding the economics behind the business. “I’m trying to find companies that are doing really well and are undervalued so I can buy them at a good price,” Barr says. That approach is paying off: at the end of October 2013, the Pender Small Cap fund had gained 19.55 per cent annualized since its June 2009 inception.
Barr splits his focus between the U.S. and Canada and has a relatively long investment horizon. “What the economy’s doing on a month-to-month, year-to-year basis isn’t that important to me,” says the CIO of $326-million PenderFund. “It’s where the business itself is going to be in five years.”
For 2014, Barr is looking at high-performing Canadian junior industrial, technology and health-care companies that earn most of their revenue stateside. Those companies are doing well because U.S. consumers are spending more after paying down debt since 2009, he says. Meanwhile, U.S. companies are making acquisitions or buying technology to become more efficient, Barr adds. “Most of the companies I’m invested in are located in Canada, but they’ll be selling almost 100 per cent of their products and services to customers in the United States.”
With U.S. markets at an all-time high in late 2013, Barr is a little worried about valuations and the market in general. “At the portfolio level, I control risk two ways: first of all by making sure I buy companies at a substantial discount to what they’re worth, and second, through portfolio weighting,” he says. “A high-conviction idea for me will be a five to six per cent weighting in the fund. If it starts to exceed what I think the company is worth, then I’ll trim that position down.”
Two Recent Investment Picks
TIO Networks Corp. (TSX-V:TNC)
“I recently dramatically increased my weighting in TIO Networks,” Barr says of the Vancouver-based company, which processes North American bill payments through channels that include kiosks and mobile phones. About 10 per cent of U.S. residents don’t have bank accounts, so TIO has put its payment kiosks in gas stations and convenience stores, Barr explains. For the fiscal year ended July 31, 2012, the company grew its revenue 16 per cent, to $42.2 million. “I see substantial topline growth and increasing profitability for TIO over the next 12 to 24 months, so it’s one of my high-conviction ideas now,” Barr says.
QHR Technologies Inc. (TSX-V:QHR)
Barr thinks Kelowna-based electronic medical records provider QHR, which posted revenue of $29.5 million in 2012—a 23.5 per cent increase—will ride the trend of moving toward electronic medical records. With about 56 per cent of Canadian physicians using EMR products in 2012, according to New York-based foundation the Commonwealth Fund, he predicts that Canada will eventually match some fellow Commonwealth nations by exceeding 95 per cent adoption. “A company like QHR, which is one of the market leaders, they just continue to grab their market share,” Barr says. “It’s a company that’s going to be two-and-a-half times larger in three to five years than it is today.”