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(Liam Sharp)
(Liam Sharp)

Smart Money

Secrets of a mutual fund giant Add to ...

Perky wee Bruhathkayosaurus may have been the most massive dinosaur ever, tipping the scale at an estimated 139 tonnes in the late Cretaceous period. It probably wasn't too nimble. It is possible, however, for a giant of a mutual fund to be light on its feet. The $3-billion TD Canadian Equity Fund has been in the elite top quartile of its peer group in six of the past seven calendar years, posting results more like those of agile small-cap funds. Manager John Smolinski, 45, racked up a blistering return of 53% for the year ended March 31, powered by rebounding commodity stocks.

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We underperformed in 2008 because we had lots of economically sensitive stocks such as industrials, railways and commodity producers. But they've performed quite nicely since then, after it became apparent the world wasn't coming to an end.

The plunge happened so quickly. Some of the smaller base metal companies were trading down at their cash value per share, and there was no point in selling them down there.

We like resources longer-term and we look at it quite simplistically: Right now there are approximately 6.7 billion people in the world and, by 2050, the base forecast is 9.2 billion. So 2.5 billion people are being added and we wonder where the supply of resources is going to come from.

China consumes about 50% of the world's output of steel and cement, and 30% of its copper. Urbanization means 10 to 20 million people a year move from farms to cities. And that's going to happen every year for the next two decades.

Mining giant Rio Tinto PLC says India's GDP per person is about 15 years behind China, meaning that Indian resource consumption is about one-tenth of that in China. So, in 15 years, we'll have another China.

We like the smartphone markets. Key holdings are Research In Motion and Apple. Look at the size of wireless markets. Brazil and Indonesia each have seven times more customers than Canada. The BlackBerry is selling extremely well in Indonesia.

In energy, we like oily stocks. There are shale natural gas plays all over North America, and they're very large. There's 100 years of supply.

I find that the best information on commodities comes from the big base metal companies. Go to BHP Billiton Ltd.'s website and look at their presentations over the years. You'll find great stuff.

We've been in banks, rather than life insurers. You get attractive dividend yields and we thought the insurers were challenged in a very low interest rate environment. They have very long-term liabilities and it got harder for them to earn the returns they need to meet those obligations.

We're not keen on gold stocks. I find I can buy a base metal company that's trading at single-digit price earnings multiples or I can buy a gold company that's trading over 20 times earnings. We'd just rather buy the cheaper one.

We prefer investing in industries that are growing, so we would never buy a newspaper stock or conventional TV. You run into the wind, you eventually get tired.

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