One of Canada’s pickiest and most careful money managers has been on a buying spree lately.
Early in July, Vito Maida had the maximum 25-per-cent cash he’s permitted to hold in running the Horizons North American Value ETF. Today, while many individual investors are paralyzed with indecision about where to put their money, he’s fully invested.
“I would say that this is the first time in a long time that we’ve been able to construct a portfolio of high-quality companies at very attractive valuations,” Mr. Maida said. Translation for non-hardcore investors: There are some good companies available right now at attractively low prices.
But what about the down side, cautious investors will say. Few money managers are more mindful of the risk in the stock market than Mr. Maida, who runs money through a firm called Patient Capital Management Inc. “That’s the basis of our investment philosophy,” he said. “We always look at how much we can lose before anything else.”
Nervous investors, give some thought to Mr. Maida’s market view as we head into a new year. In the portfolio he runs for clients of Patient Capital clients, Mr. Maida has made 7.7 per cent a year since he began in March 31, 2000, compared with 4.1 per cent for the S&P/TSX composite and a loss of 3.5 per cent for the S&P 500 in Canadian dollars (those are before-fee returns). The composite index has done better than Mr. Maida in seven of the past 11 years, sometimes dramatically better. And yet, his long-term results are higher because he has consistently avoided the kind of stock market crashes that have fractured investor confidence.
Mr. Maida is an investment industry veteran who has worked for the Trimark family of mutual funds as well as Hamblin Watsa Investment Counsel and the Ontario Municipal Employees Retirement System (OMERS). He’s a value investor, which means he looks for companies that are trading below their true value. Bargains are so few in the Canadian market right now that he has all of one TSX-listed stock in the Horizons North American Value ETF. It’s Encana, ECA-T the natural gas giant that went into late 2011 with a year-to-date loss of about one-third.
The rest of the portfolio is in U.S. stocks because, even after a year in which the Dow Jones industrial average and S&P 500 both outperformed the Canadian market, that’s where the bargains are. Note: The Horizons North American Value ETF is one of only a small group of exchange-traded funds that uses a stock-picking manager rather than a passive index-tracking approach.
Mr. Maida uses the financial services sector as an example of how there are better bargains south of the border. “In Canada, because banks have done well and have ridden out the financial crisis extremely well, the valuations have held up ... relative to the U.S. financials,” Mr. Maida said. Technology is another sector where he has done a lot of buying. The largest position in the Horizons North American Value ETF is Cisco Systems, CSCO-Q and Intel Corp. INTC-Q and Linear Technology LLTC-Q are also in the top 10.
Cisco hit $82 (U.S.) back in early 2000 and had an astronomically high price-earnings ratio of around 100. “Our average cost is in the teens and the valuation we purchased it at was under 10 times earnings,” Mr. Maida said.
Cisco shares were down about 10 per cent for the year through late December, which represents just the kind of results investors dread after the stock market ups and downs of the past year. You’re supposed to buy low, but what if the stock market takes what you’ve just bought even lower?
