No decent money manager would go into battle without a strategy, but sometimes active portfolio management calls for flexibility. Being able to toss aside an investment playbook to seize a one-off opportunity can bring success.
Here is how four money managers are finding success and setting a course for the future in their hunt for returns.
Bruce Murray, chief executive officer (CEO), Murray Wealth Group Inc., Toronto
On March 10 the world was shocked by news of the fatal crash of an Ethiopian Airlines passenger jet outside Addis Ababa. The human tragedy soon turned to scrutiny over the maker of the doomed 737 Max aircraft, Boeing Co. The ongoing investigation has hit Boeing’s shares hard, but for Mr. Murray it was a chance to invest in rival Airbus SE, a stock he was already tracking as the company still is in transition under a new cost-cutting CEO.
“In my 44 years of running money, getting to know 50 or 100 stocks really well, strange opportunities happen,” he says. “You’ve got to be on top of this stuff. You can’t always take advantage of an opportunity, but sometimes you can.”
Airbus’s shares have risen in the wake of the 737 Max investigation, but Mr. Murray sees the stock as a good long-term investment.
In another example of a one-off opportunity, Mr. Murray turned Tesla Inc.’s regulatory troubles and some questionable behaviour from its CEO, Elon Musk, into an opportunity to invest in rival auto maker BMW AG, expecting it to become the next leader in electric vehicle production.
“BMW has a brand, they will make a quality vehicle, they sold 100,000 electric vehicles last year, and they have the technology,” he says.
Ryan Bushell, president and portfolio manager, Newhaven Asset Management Inc., Toronto
Mr. Bushell considers himself a conservative investor, sticking with the tried-and-true Canadian banks, utilities, energy producers and telecommunications providers. But the boom-and-bust cycle of the resources industry recently sent him off the beaten path to the troubled forestry sector.
“[Forestry] is an industry that has been completely abandoned not only by investors but there are hardly any analysts following it,” he says.
In addition to falling stock prices, forestry companies have suffered dividend cuts and bankruptcies. But Mr. Bushell says advances in technology are leading to a resurgence.
His walk in the woods eventually led him to Western Forest Products Inc., a supplier of large stock lumber for niche housing that manages to pay out a 4.7 per cent annual dividend yield despite losing almost 40 per cent of its stock value over the past year.
“Western Forest Products has no debt because who’s going to fund them at a reasonable rate? They just generate their organic cash flow and it forces them to grow slowly and carefully,” he says. “That’s what I’m looking for for my clients as an investment that mirrors their time horizon where they get income along the way and hopefully steady appreciation in the share price.”
Robert McWhirter, president, Selective Asset Management Inc., Toronto
As a small-cap portfolio manager, Mr. McWhirter lives off the beaten path. He needs to pack his portfolio with a diversified array of volatile startup companies that can blossom or wither on the vine – or, as the small-cap saying goes, “go up or blow up.”
“The companies in growth mode can grow their sales and earnings at 20 to 25 per cent per year. It’s awfully difficult for a BCE, Magna or Bombardier to do that on an ongoing basis,” he says.
But even side paths have side paths, which led Mr. McWhirter to Xebec Adsorption Inc., a Quebec-based company that produces pollution-control equipment that transforms compressed air and gases into clean fuel that can power vehicles.
“This is a company that is doing good things for the environment, dramatically reducing the impact of natural gas and offers the ability to say we can use conventional infrastructure for refuelling our cars,” he says.
Xebec’s stock has doubled since the start of 2019, and Mr. McWhirter expects it to continue to gain in value for years to come.
Paul Harris, partner and portfolio manager, Harris Douglas Asset Management Inc., Toronto
At the other end of the risk spectrum, Mr. Harris attempts to mimic pension-style returns for retired investors who don’t have the financial stability of a defined-benefit pension.
“I’m trying to create a pension plan for my clients because they are trying to do the exact same thing that the [Ontario] Teachers’ Pension Plan and OMERS are trying to do – create an annuity when they retire,” he says.
To generate steady income streams and capital gains, Mr. Harris’ portfolio includes infrastructure holdings such as toll roads, oil and gas pipelines, and real estate enterprises such as Onex Corp. and Brookfield Business Partners LP.
“Owning private equity firms like Onex and Brookfield Business Partners gives us access to private equity, which is another asset class that a pension plan really needs,” he says.
The perils of unfamiliar territory
Not all money managers see the value in venturing from a set plan – and financial advisors and their clients should watch their step, too, when they look for alternative vehicles.
“We don’t react to market volatility. We’re more sit-and-hold, and be patient with our investments,” says Barry Schwartz, chief investment officer and portfolio manager at Baskin Financial Services Inc. in Toronto. “I’m absolutely against this march toward alternative assets. For whatever reason, the headlines in the news media and investors seem to think that they need to be there.”
Mr. Schwartz’s strategy involves buying from a set pool of proven stocks at low prices, and waiting for them to go up.
“We try to stay within the investing area we know and understand,” he says. “Once you go outside of that, you are going to get killed.”