In the less-populated corners of the stock market, where either excessive fear or excessive hype has chased away the crowds, you'll find Mark Schmehl.
He looks for signals of transformational change among the market's most sunken names, as well as its most ascendant.
"I tell companies that you will see me at the worst of times and the best of times, you'll never see me in between," he said.
As a portfolio manager for Pyramis Global Advisors, which manages funds on behalf of Fidelity Investments, Mr. Schmehl manages a pair of funds generating award-winning returns. On Wednesday evening, U.S. fund-research firm Lipper Inc., a unit of Thomson Reuters, handed out awards to mutual funds and ETFs for performance over the three years ended July 31.
The Lipper Fund Awards recognized some 70 different Canadian funds posting best-in-class performance (See the full list of winners here), including the Fidelity Canadian Growth Company Fund in the Canadian-focused equity category and the Fidelity Special Situations Fund in the Canadian-focused small/mid-capitalization equity category.
Under Mr. Schmehl's guidance, those funds posted three-year annualized returns of 29 and 25 per cent, respectively.
His performance is rooted in identifying investable change – not moderate, incremental change, but big, dramatic change.
"I leave the middle-of-the-fairway sort of investing to everybody else. All the classic things you learn in business school on how to invest, I tend to ignore. That doesn't work in the parts of the market where I operate."
Where he operates is in the two "tails" of the stock market – at one end, unloved stocks with depressed valuations; at the other, high-valuation stocks with expectations to match.
At the low end, he finds little competition. But, he said, there is an upside to exploit when stocks go from really awful to just plain awful.
Take Manulife Financial Corp. A staple of Canadian dividend portfolios before the global financial crisis, the company cut its dividend in half amid the market carnage, while its stock dove by 75 per cent in under six months.
In mid-2012, the stock was trading at barely more than its crisis-era low share price, although the company's prospects, its capital position, its pricing, and its market strategy had begun to improve, Mr. Schmehl said. "People told me, 'I will never own Manulife again.'"
He said he bet big on Manulife and doubled his money before selling mid-2014 at about the $20-a-share mark. "For a large-cap stock, that's a remarkable move."
His approach to investing is informed by a zeal for reading in search of what he calls "mega-trends." He subscribes to more than 300 magazines covering a vast range of subjects. He regularly reads titles such as Women's Wear Daily, Ocean News and Technology, and CIO Magazine.
"Just reading investment publications is pointless. That doesn't tell you anything new. I need to know what 12-year-old kids are doing today. I need to know what CEOs are thinking in Silicon Valley. I need to know what's going on in Korea."
When the same theme starts to pop up across disparate publications, he said he can get a head start on big, transformational themes.
An investment in Ambarella Inc. was supported by a few such themes, Mr. Schmehl said. As a chip-maker supporting high-quality video devices such as GoPros, Ambarella was poised to capitalize on the rise of wearables, the growth of social media and the rising need for power-efficient chips.
"It was expensive the whole time, but I think I tripled my money," he said.
Tim Shufelt