Persisting concerns about the U.S. subprime mortgage problems, Canadian asset-backed commercial paper and the U.K.’s Northern Rock financial mess continue to overhang worldwide equity markets. Yet, in spite of these worries equity markets endure and, in fact, on Monday the Dow Jones 30 Industrials Index closed at a new all time high.

This recent market strength, unfortunately, is not universal since most of the price rebound from the August lows has largely centered on liquid, large capitalization common stocks. Less liquid and relatively underfollowed small capitalization shares have lagged during this market recovery. As a result, we believe many are extraordinarily cheap.

Due to our ABC Funds’ deep value concentration, focus on long term values and hunt for severely underpriced common shares, our five ABC portfolios hold a significant number of small capitalization stocks. Understandably, while it is easy for one to become very frustrated with these lagging securities, we remain very patient and note that their relative valuation compared to their larger peers adds further to their present attraction. A few examples of these holdings include: Fortress Paper, Liberty Mines, Saxon Energy Services, Kansas City Life, U.S. Silver Corp., Whitemud Resources and McGuigan Simeon Wines Ltd.

Irwin A. Michael, CFA