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2015 Year In Review

|Includes: DIS, ENZY, EPCBF, HMCBF, ISDR, PRA Group, Inc. (PRAA), QUTIF, TPCFF

2015 was the first year since I began tracking three years ago that I underperformed my portfolio's blended benchmark, returning -8.5% vs. 1.9%. Over the three years my portfolio has returned 50.8% vs. 40.7% for the benchmark. The largest cause of the underperformance in 2015 was due to Issuer Direct, my largest holding. It had a significant drop in both USD and CAD - 44% drop in USD term, or 33% drop in CAD terms. Issuer Direct, while dropping YoY, continues to generate strong cash flow, build up shareholder's equity, has no debt on its balance sheet, and has recently launched two cloud-based platforms which should generate strong growth in 2016 and beyond. Also, they re-introduced their dividend, which will hopefully grow over time.

Home Capital Group (HCG) and PRA Group are two more detractors over the year, dropping 44% and 28% (in CAD) respectively. I continue to hold both of these positions. I have tried on numerous occasions to sell HCG, but have been blocked by my company's compliance. I won't get into the details, but needless to say I am stuck with a very cheap stock that has had slowing growth. I think HCG is undervalued currently, but I also think it's one of the more risky names in my portfolio and I will continue to look for an exit. PRA Group had been trading up-to-sideways for most of the year, however it hit a snag at the beginning of November when the company missed Q3 estimates. Given a current P/E of under 10 and a forward P/E of 7.3, I believe this company is currently significantly undervalued, given that it continues to grow. PRA has been taking advantage of the share price weakness to buy back shares.

So what worked? The biggest winner was Enzymotec, which was up 53% (in CAD). This Israeli-based health care company continues to chug along and is making good progress with growth in its pharma division. The balance sheet is rock solid and I believe the company can continue to deliver going forward. Cymbria continued to be a big winner for the portfolio, up 22% in 2015. Its largest holding, EdgePoint, continued to grow and Cymbria benefited from both the change in EdgePoint's valuation as well as the two dividends that were paid. Disney was also a big winner for the portfolio. It was sold in two tranches during the year.

What does 2016 have in store? Well it's hard to know. If I did, I'd be swimming in $$$$. I believe that the Canadian dollar will continue to be weak vs. the USD and probably get a little weaker, especially if the U.S. continues to raise rates and Canada holds steady or cuts further. This should mean that investments priced in USD or Canadian companies that get at least some of their revenue from the U.S. should benefit.

Epicore Bionetworks is an example of a company that has its financials in USD, but trades in CAD. This means that as the USD appreciates vs. CAD, Epicore's P/BV decreases, cash per share increases, trailing & forward PE decreases, etc. All in all, the valuation becomes more compelling without the stock price changing. A couple other micro cap companies in the portfolio that should benefit are Titan Logix and Questor. I believe that Titan is currently the cheapest stock in my portfolio. Admittedly, the depressed oil prices are hurting the stock, but the company has a pile of cash ($0.57/share vs. $0.69 share price) and very little liabilities, allowing me to sleep well at night.

I am not going to pick the five stocks in my portfolio that I feel will do the best in 2016, because again I don't have a crystal ball. I will say that I'm comfortable with the vast majority of my holdings, and those that are a little dicier are small positions and probably on their way out. As I gain TFSA room in 2016, I will look to add to existing positions in the portfolio first and foremost rather than increasing the number of names above the current 23.

An interesting stat: my trades in 2015 cost about 27bps in fees. While this is above a broad index ETF like the TSX or S&P 500, it is well below the 2.0 to 2.5% fee of a mutual fund. Other stats: the top 5 holdings represent 50% of my portfolio and the top 10 represent 71.6%. I have no direct equity exposure to commodities, but do have a decent amount of exposure (~15-20%) to companies that will benefit from a rebound in energy.