Lately, I’ve been asked by several advisors about the amount of cash that has built up in some of the small cap mandates that I work on. For example, Trimark Global Small Companies Class had a cash weight of about 25% as at April 30, 2014.
Most advisors tell me they appreciate that we are sticking to our discipline, but some ask whether the 10% correction of the Russell 2000 Index has created opportunities to deploy this extra capital. So far it hasn’t.
We continue to find valuations unappealing in general and are still finding it difficult to find opportunities.
Small cap markets are still trading at what I consider elevated P/E ratios: 18X for the MSCI World Small Cap and 23X for the Russell 2000 Index.
That said, the Fund itself has a 12-month forward P/E ratio of 13.47x, a 25% discount to the MSCI World Small Cap Index. I believe this offers substantial insulation from any additional pull-back seen in the indices.
While the recent 10% correction may seem like a large pull-back, in the context of the last five years it isn’t very significant. Consider the gains: Trimark Global Small Companies Fund is up almost 200% and MSCI World Small Cap Index is up 133%, as at May 9, 2014.
We remain dedicated to the Trimark discipline and are in no rush to deploy cash. On the contrary, we look forward to further correction in the small cap space, which could present us with fresh buying opportunities.
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Please note: You cannot invest directly in an index.
Trimark Global Small Companies Fund, Series A provided the following performance returns as at May 31, 2014: 1-year, 29.28 %; 2-year, 33.00 %; 3-year, 20.60 %; 5-year, 22.93 %; 10-year, n/a.
MSCI World Small Cap Index provided the following performance returns as at April 30, 2014: 1-year, 21.72%; 3-year, 9.98%; 5-year, 16.11%; 10-year, 8.03%.