CANADA TIP SHEET: Moroz Doesn't Predict Currency Moves

29th Jul 2010 17:00

By Ben Dummett Of DOW JONES NEWSWIRES TORONTO (Dow Jones)--By its very nature, the Mawer Global Small Cap fund is exposed to different currencies because its holdings include companies in various parts of the world. However, the fund's manager, Paul Moroz, a bottom-up, fundamental investor, doesn't attempt to actively hedge the fund's currency exposure. "It's difficult to hedge because often the companies themselves are hedging different currency risks in the business (and) hedging has a cost," Moroz said. In addition, a diversity of holdings acts as a natural offset, and we "have certainly seen that with the Canadian dollar and the U.S. dollar," Moroz said. "When the stock markets are down, it seems like the Canadian dollar is down so you actually get the offset with the stronger U.S. dollar," Moroz said. Mawer manages a total about C$150 million in global small-cap mandates. As of June 30, the fund had slightly outperformed the relevant group average return and the Globe Global Small/Mid Cap Equity Peer Index for the one-year period. It has sharply outpaced these benchmarks for the two-year period, according to Globefund.com Currently, about 27% of the fund is weighted in Canadian stocks, but a number of these companies, though based in Canada, generate most of their revenue in U.S. dollars. Excluding this group, the fund's exposure in terms of Canadian dollars is about 18%. The fund's holding of Constellation Software Inc. (CSU.T) is an example of a Canadian company that generates most of its revenue in U.S. dollars. Moroz likes Constellation because of its focus on acquiring software companies that service industries with technology that they can't do without. "The overall arching theme of the portfolio is blue-chip, small-cap" stocks, Moroz said. One of the fund's holdings is Parkbridge Lifestyle Communities Inc. (PRK.T), an operator and developer of land-lease residential communities and seasonal recreational resorts. Moroz acquired Parkbridge at about C$1.70 a share when Canadian small-cap stocks were hard hit during the financial crisis, possibly because U.S. hedge funds, faced with redemptions, were forced to sell stocks at relatively low prices because of a lack of buyers, Moroz said. Parkridge is trading around C$5 in Toronto. Moroz trimmed the position when it reached the C$5.50 level, given it was at the upper end of what the manager perceived as its fair-value range. Moroz took advantage of the same circumstances to acquire Altagas Ltd. (ALA.T), an energy infrastructure company. Managing a global small-cap fund allows the manager to seek potential investments outside of Canada, which is particularly valuable because small-cap companies often service "odd niches," Moroz said. One such holding is NCC Group PLC (NCC.LN), a U.K.-based provider of software escrow services. What's that? A company that is reliant on a critical software application run by a third party will hire NCC to hold the source code that the company could use in the event that the software company goes bust or reneges on its maintenance obligations. Because the contract is signed between NCC, the company and the software provider, "it becomes very difficult for a competitor to come in and gain market share," Moroz said. -Ben Dummett, Dow Jones Newswires; 416-306-2024; [email protected] TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at [email protected]. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments. (END) Dow Jones Newswires July 29, 2010 12:00 ET (16:00 GMT)