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Canada's hedge fund king, who won big by snapping up beaten-up energy bonds, is waiting for his next big move.

Hanif Mamdani, head of alternative investments at Royal Bank of Canada's RBC Global Asset Management and responsible for about $6-billion in assets, said he's prepared to sit on cash and wait for opportunities -- possibly in REITs and utilities -- that may arise if the U.S. 10-year Treasury yield climbs toward 3 or 3.5 per cent from 2.45 per cent on Tuesday.

"There's a real risk that different markets and different sectors over-shoot, and that's where we tend to make our money," he said in an interview at his Vancouver office last week.

That strategy worked like a dream for Mr. Mamdani this year. His $1.5-billion PH&N Absolute Return Fund has returned 31 per cent after Canadian energy bonds he picked up during the rout rebounded, including those of Baytex Energy Corp. and Paramount Resources Ltd. The fund won an award for the best combined 10-year return and sharpe ratio, a measure of risk-adjusted return, at the 2016 Canadian Hedge Fund Awards, with a 15-per-cent return and 1.61 sharpe ratio. The HFRX Global Hedge Fund Index has added 2.5 per cent this year, according to Hedge Fund Research Inc.

Salomon Trainee

Mr. Mamdani, 50, started his career in the training program at Salomon Brothers in 1988 after his adviser at Harvard University suggested he get two years work experience before pursuing a PhD thesis. The California Institute of Technology engineering graduate never went back to school. He spent a decade on Wall Street, including two years at Credit Suisse Group AG, before returning to the Vancouver area, where he was raised. He joined Phillips, Hager & North, now a unit of RBC Global Asset Management, in 1998. Mr. Mamdani immigrated to Canada in 1974 from Kenya.

His investment philosophy, put together with the help of two analysts, Emil Khimji and Justin Jacobsen, centres on finding good companies that are being unduly punished in the market.

"Those are the best situations where valuation is on our side and then we select high-quality instruments within that dislocated sector," he said. "Those are the two key pillars of our philosophy: quality and valuation."

Mr. Mamdani began buying energy debt near the end of 2014 when oil headed into the $50 area, and sold some of it during the rally of May and June 2015 before adding again after August 2015. At the end of the third quarter, about 80 per cent of the absolute return fund was in energy, he said. Mr. Mamdani estimates that position will fall to 60 per cent or lower by the end of this year, with some companies calling the bonds. Within three to six months he sees it at 30 per cent to 40 per cent, he said.

Maintaining Discipline

"It's one of those things where if you're watching a really good movie, when it's over, it is kind of sad," he said. "I guess we're wondering what's the next act?"

Mr. Mamdani, who also runs the $4.2-billion PH&N High Yield Bond Fund, said he worries about a lack of good opportunities for investment. PH&N briefly re-opened its funds earlier this year, raising about $200-million for the high yield fund, which has returned 17 per cent this year, and $270-million for the absolute return fund.

"I think this is one of those stages where perhaps we're going to have to accept having more cash than we need and to wait for new opportunities to develop," he said. He is conscious about not losing discipline and making marginal investments.

Biggest Mistake

His team is keeping an eye on drug and health care companies, as well as retail, for possible investments but remaining cautious given the complexity of those kinds of companies, he said. They're also looking at Real Estate Investment Trusts and utilities for opportunities driven by rising interest rates, particularly in equities, which have sold off more dramatically than bonds since the U.S. election, he said.

After nearly 30 years in the business and a string of investing wins, Mr. Mamdani doesn't hesitate when asked about his biggest career mistake: investing in some of the U.S. banks in 2007. "If I'm right 60 per cent of the time, I'm doing a pretty good job."

It remains to be seen if President-elect Donald Trump will be able to deliver reflation and growth to the U.S. economy and drive interest rates higher, but Mr. Mamdani said he expects that the next 10 years in bond investing won't look like the 30-year bull run the market has enjoyed.

"The skeptic or cynic in me often thinks that people have completely over-reacted to this one event and there's going to be so many challenges to actually pulling off this new policy and that might provide sort of zigs and zags in the market that one can trade," he said. "At this point, I'm being respectful for the potential for a more profound change in regime."