Hesperian Capital Management Ltd. norrepFUNDS
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Transcript of Hesperian Capital Management Ltd. norrepFUNDS
Hesperian Capital Management Ltd.
norrepFUNDS
Randy Oliver, CFAAlex Sasso, CFA
June 2007
Hesperian Capital Management Ltd.
norrepFUNDS
Legal DisclaimerThe material contained in this presentation is for information purposes only and does not constitute an advertisement or an offer to sell or a solicitation to buy any securities in any jurisdiction. Such an offer can only be made by prospectus.
MUTUAL FUND SHARES OF THE NORREP GROUP OF FUNDS ARE OFFERED FOR SALE BY WAY OF PROSPECTUS ONLY IN THE PROVINCES OF ONTARIO, SASKATCHEWAN, ALBERTA, BRITISH COLUMBIA, MANITOBA AND THE ATLANTIC PROVINCES.
Every effort has been made to ensure that the information contained herein is accurate, complete and up-to-date. However, no guarantee, either express or implied, is made that the information in this presentation is accurate, complete or up-to-date. The contents of this presentation are for informational purposes only and are not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard.
Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.
Indicated rates of return are the historical annual compound total returns including changes in share value and reinvestment of all dividends and do not take into account sales, redemption, distribution or optional charges or income tax payable by any security holder, if any, that would have reduced returns. The rate of return is used to illustrate the effects of the compound growth rate and is not intended to reflect future sales of Norrep Funds or returns on investment in Norrep Funds.
Hesperian Capital Management Ltd.
norrepFUNDS
Who We AreHesperian Capital Management Ltd.•Niche Managers
•Small Cap
•Quantitative
•Flow-Through (Resources)
•Established in 1995
•Began managing the Norrep Fund on Jan. 1, 1999
•Six seasoned investment professionals
•Three investment analysts
•90 years of cumulative investment experience
Assets Under Management $930 M
Norrep/NorrepII Norrep QFTLPs Norrep IGNorrep US Global LPNorrep G Pooled
Hesperian Capital Management Ltd.
norrepFUNDS
The Management Team
Randy Oliver, CFA Chief Investment Officer, Portfolio Manager and founder of HesperianPortfolio Manager of the Norrep, Norrep II and the Flow Through Funds
Alex Sasso, CFAVice President, Portfolio Manager and owner/partner of HesperianPortfolio Manager of the Norrep, Norrep II, Norrep Income Growth and Norrep Q Funds
Keith Leslie, CFAVice President, Portfolio Manager and owner/partner of Hesperian Portfolio Manager of the Norrep Q and the Norrep Income Growth Fund
Hesperian Capital Management Ltd.
norrepFUNDS
Management Team cont.
Craig Millar, CFA Vice President, Portfolio Manager and owner/partner of HesperianPortfolio Manager of the Norrep Global Small Cap products and the Norrep US Fund
Steve Smith, CAEnergy Specialist and owner/partner of HesperianOversees Hesperian’s energy investments
Kamran Khan, CFASenior Research Analyst and owner/partner of Hesperian Analysis for U.S. and Global mandates
Hesperian Capital Management Ltd.
norrepFUNDS
Norrep Funds StructureOpen-ended mutual fund structureRRSP eligible Minimum initial purchase of $10,000 Tax deferred switches amongst funds in the Norrep Opportunities corporate structure
Norrep II Class (Closed)Norrep Q ClassNorrep US ClassNorrep G ClassNorrep Income Growth Class
2% management fee (1.65% for Income Growth)Performance bonus payment of 20% of NAV growth measured at market value over a high water mark above the benchmark
Hesperian Capital Management Ltd.
norrepFUNDS
Norrep FUND Performancevalue of $10,000 investment since inception
At May 31, 2007* Compound Annual Rates of Return , NorrepFUND inception June 1997
$83,158
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Norrep Fund BMO Small Cap TRI S&P/TSX TRI
Hesperian Capital Management Ltd.
norrepFUNDS
Norrep II CLASS Performancevalue of $10,000 investment since inception
At May 31, 2007
* Compound Annual Rates of Return, Norrep II Class inception Sept. 2001
$49,656
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
2001 2002 2003 2004 2005 2006 2007
Norrep II Class BMO Small Cap TRI S&P/TSX TRI
Hesperian Capital Management Ltd.
norrepFUNDS
Norrep Q CLASS Performancevalue of $10,000 investment since inception
At May 31, 2007* Compound Annual Rates of Return, Norrep Q Class inception March 2004
$19,641
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
2004 2005 2006 2007
Norrep Q Class S&P/TSX TRI
Hesperian Capital Management Ltd.
norrepFUNDS
Norrep Income Growth CLASS Performancevalue of $10,000 investment since inception
At May 31, 2007* Compound Annual Rates of Return, Norrep Income Growth Class inception December 2005
$13,548
$9,000
$10,000
$11,000
$12,000
$13,000
$14,000
2005 2006 2007
Norrep Income Growth S&P/TSX Income Trust TRI
Hesperian Capital Management Ltd.
norrepFUNDS
Norrep US CLASS Performancevalue of $10,000 investment since inception
At May 31, 2007* Compound Annual Rates of Return, Norrep US Class inception December 2005
$11,343
$9,000
$9,500
$10,000
$10,500
$11,000
$11,500
$12,000
$12,500
2005 2006 2007
Norrep US Russell MicroCap C$ TRI
Hesperian Capital Management Ltd.
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Norrep G CLASS Performancevalue of $10,000 investment since inception
At May 31, 2007* Compound Annual Rates of Return, Norrep G Class inception June 2006
$11,799
$9,500
$10,000
$10,500
$11,000
$11,500
$12,000
$12,500
May June July Aug Sept Oct Nov Dec Jan Feb Mar April May
Norrep G Class Citigroup EMI C$ TRI
Hesperian Capital Management Ltd.
norrepFUNDS
Norrep Global LP Performancevalue of $10,000 investment since inception
At April 30, 2007* Compound Annual Rates of Return, Norrep Global LP inception June 2005
$15,309
$9,500
$10,000
$10,500
$11,000
$11,500
$12,000
$12,500
$13,000
$13,500
$14,000
$14,500
$15,000
$15,500
2005 2006 2007
Norrep Global LP Citigroup EMI TR C$
Hesperian Capital Management Ltd.
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Hesperian’s Overriding Philosophy
Our Credo
We only offer investment products where we can provide “measurably superior investment
performance”
Hesperian Capital Management Ltd.
norrepFUNDS
Hesperian Capital Management Ltd.
norrepFUNDS
Norrep II In A Nutshell
Canadian small cap focused productConcentrated holdings of 30-50 stocksTop 10 names will represent roughly 50% of the portfolioThe Fund will use the proven Hesperian investment methodologyHeavy fundamental emphasis with help from quantitative analysisThe benchmark is the weighted BMO Small Cap Equity Only Total Return Index
Hesperian Capital Management Ltd.
norrepFUNDS
Why Invest In Small Cap Stocks?
Great historical performanceDiversificationMany companies are under covered by analystsMany are inefficiently pricedDisciplined and motivated management teamsLarge number of investment opportunities
Hesperian Capital Management Ltd.
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The Desired Portfolio StructureNorrep II Class
We design an attractive portfolio before we purchase the investments
We screen hundreds of companies with these and other attractive attributes to create a workable list of opportunities to examine fundamentally
May 31, 2007 Norrep II (ideal)
Norrep II (actual)
BMO Small Cap
Trailing P/E 15.0x 13.0x 34.6x
Trailing ROE 15.0% 28.1% 11.0%
Earnings Surprise
>0% 2.8% -0.9%
Yield 1.0% 1.2% 0.5%
Hesperian Capital Management Ltd.
norrepFUNDS
Hesperian’s Quantitative Process
Very effective way to find new stock ideasAssists in monitoring existing holdingsHelps identify industry trendsAll quantitatively derived stock selections also undergo a rigorous and extensive fundamental examination before investment is made
Hesperian Capital Management Ltd.
norrepFUNDS
Norrep II Class AdvantageFund Attribute: Norrep II Class
BMO Small CapIndex Our Advantage
Price to Earnings (trailing) 13.0 34.6 21.6
Price to Earnings 11.8 25.2 13.4
Price to Cash Flow (trailing) 9.0 13.9 4.9
Return on Equity (trailing) 28.1 8.0 20.1
Earnings Surprise 2.8 -0.9 3.7
Estimate Revisions -2.8 -12.4 9.6
Quarterly Earnings Momentum 7.1 -0.6 7.7
Quarterly Cash Flow Momentum 6.6 0.8 5.8
Expected Dividend Yield 1.16 0.53 0.63
Debt to Equity 0.25 0.45 0.20
Cash Flow to Debt 1.43 0.35 1.08
Hesperian Capital Management Ltd.
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Norrep II Performancevs. Benchmark
For the period ending May 31, 2007* Annualized
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
1 Month 3 Month 6 Month 1 Year 2 Year* 3 Year* 5 Year* SinceInception*
Norrep II Class BMO Small Cap TRI
Hesperian Capital Management Ltd.
norrepFUNDS
Norrep II Performance Advantage
For the period ending May 31, 2007
* Annualized
** Source: Globefund
Norrep II ClassPeer Group Average** Value Added
BMO Small Cap TRI Value Added
1 Month 7.3% 3.2% 4.0% 2.7% 4.6%
3 Month 12.3% 8.6% 3.7% 8.6% 3.7%
6 Month 25.3% 14.8% 10.5% 15.7% 9.6%
1 Year 26.7% 16.0% 10.7% 21.9% 4.8%
3 Year* 34.1% 18.9% 15.2% 22.1% 12.0%
5 Year* 28.1% 15.5% 12.6% 18.2% 9.9%
Since Inception*
32.7% n/a n/a 22.4% 10.3%
Hesperian Capital Management Ltd.
norrepFUNDS
2004 Flow-Through PerformanceAfter Tax Numbers 2004
Inception Date 08-Jun-04
Flow Through Portion
After Tax Cost $ 4.375
Distribution #1 $ 0.73
Distribution #2 $ -
Total Distributions $ 0.73
Closing Value of LP $ 8.81
Closing Value & Distribution $ 9.54
Taxes Payable if sold at rollover $ 2.15
Total "After Tax" Return 68.97%
Total "After tax" Annualized Return 19.03%
* Assumes a 45% marginal tax rate
* Assumes full cycle investing with all tax deductions taken, sale of investment at June 12, 2007 and all capital gains taxes paid
Hesperian Capital Management Ltd.
norrepFUNDS
Canadian distributor of software products
Current valuation 14x Trailing P/E33% ROE
Reasons to ownAttractive valuationStrong, dominant operatorNew products
SO Softchoice
Hesperian Capital Management Ltd.
norrepFUNDS
Rents modular structures for workforce accommodations
Current valuation (f2007)6.5x ev/ebitda55% payout ratio
Reasons to ownAttractive valuation3 years of visibilityMgmt owns a large percentage of co.
BDI-U Black Diamond IF
Hesperian Capital Management Ltd.
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Why Should You Keep your Investment In The Norrep II Fund?
Very strong Norrep/Hesperian track record
Access to one of Canada’s premier small cap investors
Unique product in Canada
Focus on great portfolio metrics ensures a very attractive group of stocks
Safer way to play Canadian small caps
Very disciplined and consistent approach
Attractive trailer will grow as the Fund grows
Hesperian Capital Management Ltd.
norrepFUNDS
Overexposed To Canadian Small Caps?
You can make a tax deferred switch within Norrep Opportunities CorporationConsider the following products:
Norrep Q ClassNorrep Income Growth ClassNorrep US ClassNorrep G Class
Hesperian Capital Management Ltd.
norrepFUNDS
Risks Of The Norrep II Class
Volatility of small companies vs. large
Liquidity (Small Co. vs. Large Co.)
Political and regulatory
Interest rates
Equity risk
Slowdown in macro economic growth
Currency
Hesperian Capital Management Ltd.
norrepFUNDS
Thank youwww.norrepfunds.com
Hesperian Capital Management Ltd.
norrepFUNDS
Investment Toolbox
Long Term
StrategyManagement
Business Model
Competition
Fundamental
Short TermStrategyEconomicCurrenciesMarket Trends
Quantitative
Mass ScreeningMultiple variablesIdea Generator
Technical
Identify PatternsOpportunistic buying andselling
PORTFOLIO FRAMEWORK
VALUATION
Hesperian Capital Management Ltd.
norrepFUNDS
The Sell Decision
Has management changed, in person or philosophy?Is the company growing slower and/or trading at higher values relative to its peers?Has the macro situation for the company changed?Does the company still “work” as part of the “Desired Portfolio Structure”?Quantitative analysis highlights necessary reviews.
Hesperian Capital Management Ltd.
norrepFUNDS
Norrep II Class P/E and ROE
0.0
5.0
10.0
15.0
20.0
25.0
30.0
01
/05
/20
05
01
/06
/20
05
01
/07
/20
05
01
/08
/20
05
01
/09
/20
05
01
/10
/20
05
01
/11
/20
05
01
/12
/20
05
01
/01
/20
06
01
/02
/20
06
01
/03
/20
06
01
/04
/20
06
01
/05
/20
06
01
/06
/20
06
01
/07
/20
06
01
/08
/20
06
01
/09
/20
06
01
/10
/20
06
01
/11
/20
06
01
/12
/20
06
01
/01
/20
07
01
/02
/20
07
01
/03
/20
07
01
/04
/20
07
01
/05
/20
07
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Trailing P/E Current Year P/E ROE
***Source: Globefund