Money-making bets on takeover targets such as Flint Energy Services Ltd. (FES.TO) and TMX Group Inc. (X.TO) are pushing gains in the Bissett Canadian Equity Fund (BISCNEQ) ahead of all competitors this year, Bloomberg reported.
Calgary-based managers Garey Aitken and Tim Caulfield of Bissett Investment Management returned 14.4% in 2012, the most among 33 Canadian equity mutual funds overseeing C$1 billion ($1.01 billion) or more, according to data compiled by Bloomberg as of Dec. 18. The advance compares with a 6.1% increase for the Standard & Poor's/Toronto Stock Exchange Composite Index, including dividends.
The report said Aitken and Caulfield are finding winners in the world's second-worst performing developed equity market by looking past industries to pinpoint companies trading for less than they are worth. The strategy steered them away from commodity producers, the year's worst stocks. The S&P/TSX Energy and Materials indices are the worst-performing industries this year, falling 3.7% and 8.8% respectively.
"Our approach is well-suited to take advantage of frequent mispricing of equities," Caulfield said. "We are always looking to own businesses trading at a discount, and that may mean they then get acquired and the share price converges with the intrinsic value."
Merger values increased in Canada this year, with 2,288 announced and completed transactions for a total of $207.44 billion as of Dec. 19, the highest since 2007. Flint has returned 96% for the Bissett fund, according to data compiled by Bloomberg as of Dec. 18. The Calgary-based oilfield services company was acquired by URS Corp. in a C$1.34 billion deal completed in May.
Caulfield and Aitken earned a 20% return from their investment in TMX Group. The operator of the Toronto Stock Exchange was acquired by a group of banks and financial services companies in a C$3.73 billion deal that closed in September.
Celtic Exploration Ltd. (CLT.TO), which has oil and gas properties in the Montney and Duvernay shale regions of Alberta, contributed a 14% return when it agreed to be sold to Exxon Mobil Corp. ( XOM ), the world's largest energy company, for C$2.9 billion.
Another holding that benefited from takeover speculation is Inmet Mining Corp. (IMN.TO), owner of the second-biggest copper mine under construction. The Toronto-based company has surged 40% since Nov. 28, when it disclosed an unsolicited offer from First Quantum Minerals Ltd. (FM.TO), a producer of copper in Africa, that is now valued at C$5.2 billion.
Inmet was trading at a discount of as much as 47% to the S&P/TSX Materials index in October, a month before the announced offer.
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