Global Small Cap Fund Commentary
Fund Commentary - December 31, 2011
The past year saw an incredibly volatile global equity market
resulting from broad macro events. In light of this, IA Clarington
Global Small Cap Fund underperformed the S&P Developed Small
Cap Index for the 12-month period ending December 31, 2011. The
Fund saw strong stock selection within the Financials and Health
Care sectors, and was supported by an underweight in the Materials
sector as well as a residual Cash position. However, stock
selection in the Consumer Discretionary and Energy sectors, coupled
with a relative overweight compared to the benchmark were the
largest detractors to Fund performance. Within the Financials
sector, the three Lloyds insurance companies, Hiscox Ltd.,
Lancashire Holdings Ltd., and Catlin Group Ltd., rose strongly
during the second quarter on confidence that the initial loss
estimates from the Japanese tsunami, New Zealand earthquake and
Australian storms were too high.
Health Care sector holdings, Pharmaceutical Product Development,
Inc. (PPD), a global contract research organization focused on drug
discovery, rose significantly as the company announced it was to be
acquired by a group of private equity firms. The position was sold.
Consumer Discretionary sector positions Pandora Holding AS and Game
Group PLC were among the largest detractors to the Portfolio due to
mis-guidance by management and a weak consumer market,
respectively. Both positions were sold. After a strong first
quarter of appreciation, a swift pull-back in Energy prices and
decelerating U.S. growth negatively impacted the group. Specific
names in the Fund that detracted from performance include Cimarex
Energy Co. and Forest Oil Corp., both of which reported lighter
than expected first quarter earnings and reduced production
guidance. On a regional basis, the Fund benefitted from strong
stock selection in the United States. The largest detractors were
Europe, namely the Netherlands, Denmark, and the United Kingdom,
due to stock selection.
Throughout the period, the largest sector increase was in Health
Care. The Portfolio Sub-Advisor initiated positions in DaVita Inc.,
a provider of dialysis services, CareFusion Corp., a provider of
respiratory and infection care products, Patterson Cos. Inc. a
dental product distributor, and Agilent Technologies Inc. a
bio-analytic and electronic measurement solutions provider. These
purchases were offset by the sale of Zimmer Holdings Inc.,
Cephalon, Inc. (acquired by Teva Pharmaceuticals Industries Ltd.),
PPD and Forest Laboratories, Inc. The largest sector decrease was
in Materials. Anvil Mining Ltd. is a junior development company
that has expanded production and exploration of copper and silver
while trading at very low multiples. During the second half of
2011, the company's largest shareholder, Trafigura, initiated a
strategic review in an effort to sell its stake. Late in the third
quarter, Minmetals Resources Ltd. announced a takeover offer at a
39% premium relative to the stock's previous closing price. Rhodia
SA, the French specialty chemical company and also a takeover
beneficiary, rose significantly during the start of the second
quarter. Belgian plastics and chemicals producer Solvay S.A. made
an offer to purchase the company for approximately EUR 3.4 billion.
Both Anvil Mining Ltd. and Rhodia SA were sold.