For many retail investors, the TSX Venture Exchange may not loom large in their portfolio strategies.
The TSXV is home to about 2,300 companies, mostly a collection of small- and medium-cap issuers with none of the big names that are listed on the Toronto Stock Exchange. The TSXV\u2019s total market capitalization is $55 billion \u2014 about 3% of the market cap of S&P\/TSX firms. And the average risk profile of the TSXV\u2019s listed companies is much higher than that of the TSX.
However, a new retail fund from Toronto-based Mavrix Fund Management Inc. <\/b> is designed to give investors a shot at those TSXV companies that have good prospects of graduating to the TSX.
Mavrix TSX Venture Graduation Fund has been created, according to the recently filed preliminary prospectus, \u201cto provide investors with the potential for capital appreciation through exposure to an actively managed portfolio of growth-oriented, small-capitalization companies, selected primarily from the TSX Venture Exchange.\u201d
Mavrix manages about $700 million of assets.
Mavrix will focus on issuers that have been included in the TSXV 50, a \u201cranking, created and maintained by the TSX Venture Exchange, of 50 of Canada\u2019s high-growth, emerging companies\u201d in five sectors: mining; oil and gas; technology; life sciences; and diversified. The 50 companies are chosen on the basis of: revenue; one-year share price growth; one-year market cap growth and one-year trading volume. Each of the five sectors is home to 10 companies.
Mavrix believes that the TSXV 50 is a strong predictor of a company\u2019s potential to graduate to a TSX listing.
According to calculations done by Mavrix, TSXV companies that have graduated to a TSX listing have shown an average one-year outperformance of about 26% over the return of the S&P\/TSX composite index.
Each Mavrix fund unit consists of a trust unit plus half a fund unit purchase warrant. Each unit costs $10. Over the next two-and-a-half years, warrant holders have the right to purchase another unit at $10.25.
Mavrix says the product gives exposure to an often overlooked part of the investing world that has, in general, been a strong performer. Since Dec. 7, 2001 \u2014 the day the TSXV was created \u2014 the S&P\/TSXV index has appreciated by more than 175% \u2014 or more than double the gain for the S&P\/TSX composite index over the same period. The Mavrix fund represents a relatively low-cost way to gain that exposure.
Mavrix will receive a management fee of 1.10%, while advisors will receive a trailer or servicing fee of 40 basis points. Those fees are fairly standard for structured products.
Mavrix notes that the fund is denominated in Canadian dollars \u2014 meaning there is no currency risk. And on Nov. 1, 2009, it will become an open-ended mutual fund.
By converting, the fund will avoid the problem of most closed-end funds \u2014 a large gap between the fund\u2019s net asset value and its lower trading price.
\u201cThe concept is interesting, in theory,\u201d says Adrian Mastracci, a portfolio manager with KCM Wealth Management Inc.<\/b> in Vancouver. \u201cIt is not easy to invest in the TSXV. This fund gives an investor a way of getting into the TSXV in an index-type way.\u201d
Mastracci adds that the Mavrix fund is on the speculative and aggressive side: \u201cIt is not for widows and orphans, but for somebody who has a little mad money and has done his or her homework.\u201d\tIE<\/b>
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