PenderFund

Manager’s Quarterly Commentary – David Barr – Q2 2017

Written on . Posted in Commentaries, Pender Canadian Opps Fund, Pender Select Ideas Fund, Pender Small Cap Opps Fund, Pender Value Fund

We are well into summer now, our favourite time of year for taking a step back and reading about bigger picture topics that deepen our investing skill set. Halfway through the year we can assess how a couple of trends we have discussed in the recent past are either playing out as we anticipated or have continued on their merry way. We think it would be useful to revisit our last two manager’s commentaries to provide an update on current situations.

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Pender Corporate Bond Fund – Manager’s Commentary – July 2017

Written on . Posted in Commentaries, Pender Corporate Bond Fund

The Pender Corporate Bond Fund returned 0.5% in July, a reasonable result in a market that saw significant drawdowns in the benchmark credit indices.  Driving the performance of the Fund in July was strong appreciation in floating and fixed-reset rate preferred shares, as these rose with rising Government of Canada bond yields.  In addition, certain individual credit positions performed well.  For example, Grupo Famsa 7.25% notes of 2020 rallied over 10% as the Mexican furniture retailer and consumer finance company raised long-term bank debt, and consequently was able to announce a partial redemption of these US dollar notes at 103% of face value.  Offsetting these gains, to a degree, was a decline in some longer-duration credits that were affected by rate increases.

Download the full commentary as a pdf.

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Pender Corporate Bond Fund – Manager’s Commentary – June 2017

Written on . Posted in Commentaries, Pender Corporate Bond Fund

The Pender Corporate Bond Fund returned 0.3% in June, a reasonably good result given generally weak performance of credit markets. Helping this performance was our position in the convertible notes of EnerNOC Inc, which jumped more than 9% on the announcement of its agreement to be acquired. Our positions in Canadian rate-reset preferred shares also rallied strongly on upward movement in the Canadian 5-year bond yield. Offsetting this move was weakness in some securities with exposure to commodities.

A key event this month was the very aggressive message coming from the Bank of Canada indicating that, for the first time in two years, it was considering raising its benchmark overnight lending rate from current levels of 0.5%. The relatively rate-insensitive positioning we have adopted helped protect the Fund from some volatility that arrived in the wake of this news.

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Manager’s Quarterly Commentary – Felix Narhi – Q1 2017 – Part 2

Written on . Posted in Commentaries, Pender Strategic Growth and Income Fund, Pender US All Cap Equity Fund

All we want in life is no competition or an unfair advantage.

At Pender we sometimes joke that all we want in life is either no competition or an unfair advantage. This is only partly in jest. In truth, virtually all great businesses have unfair advantages – Warren Buffett calls such advantages economic “moats”. Moats are very valuable if they provide a business with the ability to generate sustainably high returns on capital, which creates wealth for its owners. The ideal business is one that uses very little capital, has a defensible business model and can continue to grow at a decent clip. The growth of such a capital-light business generates lots of extra free cash flow every year which is not required in the core business. As an investor, you get a double-barreled compounding effect from this earnings growth – first from the value of the growing business and second from the value of the excess cash which can be used to fund other promising opportunities, repurchase shares or pay out dividends. There are relatively few businesses like that, but this approach describes the business models of many of today’s tech giants including Apple, Google, Facebook, Amazon and Microsoft. As these enterprises illustrate, management teams that have the ability to look around the bend and make smart early bets on tomorrow’s promising trends and achieve critical mass have the potential to create large fortunes. Collectively, these companies have grown so rapidly that extra cash continues to pile up faster than many of these companies can deploy it. A high class problem!

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Manager’s Quarterly Commentary – Felix Narhi – Q1 2017 – Part 1

Written on . Posted in Commentaries, Pender Strategic Growth and Income Fund, Pender US All Cap Equity Fund

“The concept of a general equilibrium has no relevance to the real world (in other words, classical economics is an exercise in futility.)” – George Soros

The Loonie – To Hedge or Not to Hedge

We have been fielding more questions about currency and potential hedging strategies recently. We are not currency experts or forecasters, but we are keen observers of the lessons from history, respect long-term cycles and are eager to study how the world really works so we can position ourselves sensibly. When contemplating the recent trajectory of the loonie, we are reminded of George Soros’ theories that financial markets do not tend towards equilibrium as conventional theory would argue. Rather, that markets feed on their own misconceptions about events to drive exaggerated movements, which then feeds further momentum. Soros describes this two-way feedback loop between perception and reality as his theory of reflexivity. He claims that speculative runs on a currency can persist for a long time and relative movements in one currency against another are frequently of a long term, secular nature, often measured over many years, rather than days or weeks. That has certainly been the case for the loonie.

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