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Tocqueville SMID-Cap Fund Takes Volatility in Stride, Beats Its Competitors

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When the Dow plummeted 279 points on April 17 and the Tocqueville Opportunity Fund (TOPPX) lost 1.63%, its portfolio manager, Thomas Vandeventer, didn’t flinch.

“The market tends to overreact sometimes,” says Vandeventer. “Because we’re longer term investors we can take advantage of that volatility.”

He will often buy stocks on those big down days, adding to positions the fund already has or establishing new ones.

It’s part of an overall bottom-up diversified strategy that’s been working for the fund. The Tocqueville Opportunity Fund is one of a select group of actively managed funds that has been consistently beating the market over time. Year to date, it’s up 11.3%, compared with 7.4% for the Russell 2500 growth index (R25IG) that it tracks and 1% for the S&P 500. Morningstar ranks Tocqueville Opportunity Fund the number one mid-cap growth fund year-to-date and for one year.

Vandeventer categorizes the fund as” smid-cap”—a combination of small- and mid-cap. “We’re not mid-cap or small-cap,” says Vandeventer. “We’ve got feet in both markets and we’re a beneficiary of that.”

Lately the fund has been a beneficiary of big takeovers in health care and technology — the two sectors it’s been favoring. “Already this year eight to nine percent of our portfolio has been taken over for cash,” says Vandeventer. Among those holdings acquired this year are Concur Technologies, bought by SAP (SAP); NPS Pharmaceutical purchased by Shire (SHPG); and Cubist, acquired by Merck (MRK). An acquisition of Pharmacyclics (PCYC) by AbbVie (ABBV) is not yet finalized.

Five of the fund’s top 10 holdings are in health care — primarily biotech; three are technology companies. “There’s a real revolution attributed to genetic science … attacking diseases on a very targeted basis,” says Vandeventer.

The $102 million fund with a 1.3% expense ratio owns larger biotech companies, like Regeneron Pharmaceuticals (REGN), and smaller companies, like Alnylam Pharmaceuticals (ALNY). “A lot of people haven’t heard of these [smaller] companies,” says Vandeventer. But he follows them from early trials to drug development, watching to see if they hit certain milestones, and then expands his commitment if they do.

Like a pawn that can win the chess game by steadily moving across the board to the other side, becoming a queen, these companies can “creep along,” says Vandeventer. “You have to pay attention to them.”

On the tech side Vandeventer favors software companies that “lower the total cost of ownership,” such as ServiceNow (NOW), which uses the cloud to help automate workflow and streamline everyday work processes for companies.

Some of these small and mid-cap companies won’t have big earnings or big followers in the market, which can make their stocks more volatile and risky. Vandeventer manages that risk by using a “very diversified approach,” owning roughly 200 companies, with no single stock accounting for more than about 2.5% of the portfolio and many equal to 15 to 20 basis points of the fund. Overall, though, 75 names account for about 75% of the fund’s assets.

“You need to diversify more so in growth investing than value investing because you don’t have as much margin of safety,” explains Vandeventer.

He uses both qualitative and quantitative analysis for find new investments. A quantitative program screens a huge database of thousands of small and mid-cap stocks that have earnings and revenues for key metric including valuation, growth and sustainability and capital returns. Then he digs deeper into those companies, ultimately favoring those with differentiated business models that allow cost savings and higher profitability. He looks for companies that reinvest their capital rather than returning it to investors through buybacks and dividend increase.

In addition to health care and technology, Vandeventer also currently likes consumer staples and consumer discretionary stocks and “if the economy accelerates past second and third gear,” he expects there will be a “very good opportunity to move money back to industrials.”

Top 10 Holdings of Tocqueville Opportunity Fund

as of 03/31/2015                                            % of Total Assets

Alnylam Pharmaceuticals, Inc.


Intercept Pharmaceuticals, Inc.


Pinnacle Financial Partners, Inc.


PTC Therapeutics, Inc.


Manhattan Associates, Inc.


Actavis plc


Palo Alto Networks, Inc.


Regeneron Pharmaceuticals, Inc.


ServiceNow, Inc.


Hanesbrands, Inc.


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