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Andrew Allentuck

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Small but well managed

Andrew Allentuck

 

WINNIPEG (GlobeinvestorGOLD) — Mike Weir runs a little-known fund that after 32 years in business is one of the oldest small-cap portfolios in Canada. It's also the most successful fund in the sector over the three decades of its existence.

Since inception in 1972, the GGOF Enterprise Classic Fund has produced a 10.7-per-cent average annual return, well above the 9.0-per-cent average annual return of the broad Toronto Stock Exchange in the same period. Over the 20-years for which peer-performance data are available, it produced a 9.9-per-cent average annual return, making it the top performer for the two-decade period.

The $30-million portfolio returned 37.8-per-cent for the 12 months ended March 31, 2004, compared with the 50.5-per-cent return of the median Canadian small-capitalization fund in the in one-year period. Mr. Weir, who is a managing director of Toronto-based Guardian Capital LP, has headed the fund — part of the Toronto-based GGOF Guardian Group of Funds — since September 2000 along with co-manager Mike Christodoulou.

Currently, the fund is run mostly on the "growth at a reasonable price" principle. Often called GARP, the method monitors the ratio of price to earnings (p/e) divided by the rate of growth of earnings or other measures of corporate progress.

"We're GARP managers, but that's just one element of our investment decision-making process," Mr. Weir said. "We also look at the predictability of growth, the quality of the balance sheet, and the entrepreneurial culture of the company. Even when we buy resource companies, we buy not for the commodity price play, but for their ability to grow despite volatility in their underlying commodity prices."

Today, the portfolio is almost fully invested. The largest weight is industrials (28 per cent), followed by consumer discretionary companies (18 per cent), materials (16 per cent), energy (12 per cent), information technology (9 per cent), financials (4 per cent), and health care (4 per cent), with the residue in cash.

"We're overweight industrials, not because we're sector allocators, but because we're stock pickers and we have found opportunities in that sector," Mr. Weir said. "When we see stocks that are selling for less than we think they're worth, we buy them. Our goal is to find companies that can sustain growth for three or more years."

GGOF Enterprise Classic shows the relatively steady performance that GARP management produces, said Dan Hallett, president of Windsor, Ont.-based Dan Hallett & Associates, a mutual-fund research company.

"During the bear market, from early March, 2000 to the end of March, 2003, the fund lost just 4.0 per cent, compared with a loss of 20 per cent by the benchmark BMO Nesbitt Burns Small-Cap Index," he explained. "The investor has traded some performance for safety. This fund is a good core holding for small-cap exposure in Canada, with relative safety compared to others in the sector."

Andrew Allentuck writes about investments for The Globe and Mail, and reviews books on finance for globefund.com and globeinvestor.com. He is also the author of several books.

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