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When Stephanie Griffiths spent a day traipsing through Texas pawnshops three years ago, she discovered a thriving niche.
A pawnshop chain may not seem a likely moneymaking prospect for investors, but U.S.-listed First Cash Financial Services Inc., which has some 800 outlets mainly in Texas and Mexico, has turned out to be a stellar-performing stock for the Canadian fund manager.
“It’s a terrific business,” enthuses Ms. Griffiths of Toronto-based Mackenzie Financial Corp. “There are a lot of them that do mostly jewellery, but these guys do the full gamut. I have been in the back of some of the stores, and they have all kinds of stuff – everything from a [kid-size] Barbie jeep to firearms, watches, television sets and even tools, which is a big part of their business.”
After her trip, she began snapping up shares of First Cash in early 2010 in the $22-$23 (U.S.) range. The provider of short-term loans, which now trades around $53 a share, had taken a beating during the global financial crisis.
“It’s considered a financial, but it’s not like a bank,” she said. “They actually benefit from hard times because, when times are tough, people are more likely to be pawning their things. … But most people come back and redeem their items.”
Her Mackenzie Ivy Enterprise Fund, which she has managed since 2000, won a Lipper Award for three-year performance in the North American equity group. The fund, which is focused on smaller companies, gained an annualized 10.2 per cent for three years that ended last Oct. 31. (Her fund also won the award last year for one, three and five years.)
Other winning stocks include Richelieu Hardware Ltd., a maker of decorative hardware, and Transcend Services Inc., a provider of medical transcription services that was acquired last year by Nuance Communications Inc.
“We always look for these smaller companies that are in a niche, and are leaders in it,” she said.
“I only own about 25 names – companies that have a strong balance sheet so they don’t have a lot of debt and get into trouble,” said the 48-year-old manager, whose registered retirement savings plan (RRSP) and children’s registered educational savings plan (RESP) are invested in her fund. “I worry about losing people’s money. To me, the most important thing is preservation of capital.”
Money management was not a career she sought out from the get-go. After earning a sociology degree from the University of Toronto and a journalism degree from Ryerson University, she took the Canadian Securities Course with thoughts of becoming a business journalist. Because of the tough job climate during the early 1990s, she took odd jobs, and worked as an unpaid “intern” one summer at Fairfax Financial Holdings Inc., where she wrote research reports that she could show potential employers.
After getting her chartered financial analyst [CFA] designation, she landed a job at Sprott Securities Ltd. [now Cormark Securities Inc.], an institutional brokerage focused on smaller-company stocks. Her detailed research reports soon caught the eye of Jerry Javasky, a now-retired, former fund manager at Mackenzie who hired her, and eventually enlisted her to manage the Ivy Enterprise Fund.
“I really believe that anybody who owns equities should own small caps,” she said. “Why not buy equities that have the potential to grow faster? I think there is this belief that big companies are safe, but look at Nortel, Enron and Lehman Brothers. We’ve had some pretty big companies go to zero.”