While some portfolio managers are making adjustments to prepare for an economic storm, Mawer Investment Management's Christian Deckart says his team is charting the same course.
“Our view is that you don’t fix your ship in a storm. We try to get our portfolios resilient, but not only when there’s a storm,” says Mr. Deckart, who is also Mawer’s deputy chief investment officer and co-manages the $10.7-billion Mawer Global Equity Fund and the $3.8-billion Mawer Global Small Cap Fund.
Both funds have returned about 14 per cent year to date, as of Sept. 30. The management expense ratio (MER) for the Series A Global Equity Fund is 1.31 per cent, and the MER for the Series A Global Small Cap Fund is 1.74 per cent.
The returns compare with the year-to-date performance of the MSCI All Country World Index of 12.6 per cent and the MSCI All-Country World Small Cap Index 10.1 per cent, as of Sept. 30.
Mr. Deckart and his team at Mawer were among the winners of this week’s Lipper Fund Awards in recognition for strong performance in several of their equity and mixed asset funds. The Globe and Mail recently spoke to Mr. Deckart about his investing strategy.
Describe your investment style.
The philosophy is the same across all of our equity asset classes. We try to buy wealth-creating businesses run by excellent management teams and we try to buy these companies at a discount to intrinsic value. We look for businesses with a high return on capital and that have a competitive advantage to protect those returns. We see ourselves as long-term owners of companies and not traders that are quickly in and out of stocks. Often, we find the characteristics we’re looking for in asset-light companies, such as knowledge businesses, software companies and insurance brokers, for example.
What concerns are you hearing from investors today?
A big one is cycle concerns, that the economy is turning – manufacturing PMIs [purchasing managers’ indexes] have been falling, for instance. Also, the last big turn in the cycle was 10 years ago, so there are some concerns about that. Another concern is [low or] negative rates and what will happen when those rates eventually rise. The value of your stocks, bonds, real estate and alternative assets – everything that produces an income – is influenced by these discount rates. It’s hard to diversify away from that risk. That’s the extraordinary situation we’re in. It’s a party. The risk is the end of the party.
What have you been buying lately?
An example in our Global Small Cap Fund is Bakkafrost P/F, a salmon farming company in the Faroe Islands in the North Atlantic, which has some very favourable geographic and climate conditions for salmon farming. [It trades on the Oslo Stock Exchange.] In our Global Equity Fund, we recently bought Alimentation Couche-Tard Inc. [the Quebec-based convenience-store operator]. We see both as attractive companies. With Couche-Tard in particular, convenience is an attractive segment even in an economic downturn. While e-commerce is growing, they sell things that you don’t want to wait 24 hours for. We can’t predict economic cycles, but we do think about resiliency.
What have you sold?
In our Global Equity Fund, we sold International Flavors & Fragrances Inc., which produces flavours, fragrances and cosmetic active ingredients. It trades on the New York Stock Exchange. We had some concerns about their acquisition strategy, including one big acquisition recently [Israel-based Frutarom Industries Ltd.]. In our Global Small Cap Fund, we recently sold two London-listed companies: LSL Property Services PLC, a residential property services business, and ITE Group PLC, which is in the trade exhibition and conference business. Both companies have their stock-specific issues, but it was the combination of these issues and Brexit uncertainty that tipped the scales. We sold them earlier this year.
Name at least one stock you wish you bought.
Trade Me is the Kijiji in New Zealand. It’s an online classified advertising service and another example of an asset-light business. We looked at it, but were concerned about [competition from] Facebook. Months later, it got taken out at a premium. [It was acquired by private equity firm Apax Partners in May].
What's your best advice for Canadians hoping to become high net worth investors?
Have a lifelong commitment to learning. Always be curious. There is more that you don’t know than you do know. Embrace uncertainty.
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This interview has been edited and condensed.