When it comes to the global small-cap mandate he oversees, Christian Deckart isn’t ignoring the macroeconomic environment, including risks from the reduction of quantitative easing from central banks and rising interest rates, but it’s not driving his decisions. “We think micro, but worry macro,” says the deputy chief investment officer at Mawer Investment Management, who has about $3-billion in assets under management. His return was about 10.7 per cent year-over-year as of June 1 and 14.8 per cent annualized over the past 10 years. “We think we’ll make money for our clients by owning good businesses,” he says. The Globe and Mail spoke with Mr. Deckart recently about some of the international small caps he’s been buying and selling and one he exited too soon.
Describe your investment philosophy
We see ourselves as long-term owners of good businesses that create wealth for shareholders and are run by excellent management teams. We try to buy these businesses at a discount to their intrinsic value. We tend to own these businesses for a long period of time – on average about five to 10 years. We have less of a focus on trading the businesses back and forth. When we build portfolios we look at things business by business, stock by stock. It’s the long run we’re more concerned about.
What concerns are you hearing from investors today?
The concerns in the market in general right now are the withdrawal of central bank liquidity that has been around now for about 10 years since the financial crisis, in combination with increasing rates in many parts of the world. The concern is that a lot of that liquidity has propped up markets over the last few years and if that goes away, where will markets be? The other concern is that there are more alternatives to investing in equities as interest rates [go higher]. Stocks in comparison to bonds or other interest-rate investments may appear less attractive.
What stock(s) have you been buying lately?
A new buy is Kusuri no Aoki, a Japanese drugstore chain with a strong market share in many regions in which they operate. It sounds like a boring business, but it’s very profitable. Return on capital was above 15 per cent in 2017, for example. We think it’s well managed and has growth potential – think of Japan’s aging population – and like the overall quality of the business. Another is payroll outsourcing business Insperity [based in Texas and trades on the NYSE], which caters to small business. Insperity is a pioneer in the business and has been around for decades. It has good momentum right now. We’ve owned it for about 18 months and have been adding to it recently. There are good numbers coming out of the business. It’s a nice growth story.
What stock(s) have you been selling?
Usually, we sell stocks when either the quality of the business declines or when the stock runs up and the future return potential appears lower. We’ve reduced a number of positions recently due to valuation concerns. One we sold out of is Frutarom, a flavour and fragrance business [based in Israel]. We sold on valuation. [It has since been taken over.] We owned it since 2012 and participated in the wealth creation of the business. An example of one we’ve trimmed is Maruwa Unyu, a logistics business out of Japan. We owned it since 2017. Our North American exposure is low in our global fund, but one we’ve reduced is Douglas Dynamics, ticker is PLOW on the NYSE, the largest manufacturer of light-duty snow plows. We’ve owned it since January, 2016. There are also stocks we sell involuntarily because they’re taken over by large competitors. One recently was a Malaysian coffee chain called OldTown Berhad, which we owned since 2012.
What’s the one stock you wish you bought?
The most painful one is one we owned and sold in 2015, Nemetschek, [a German-based company] which makes software used by architects. We owned the stock for about 18 months between 2013 and 2015. The share price appreciated too fast in our view. The stock is up threefold since and the earnings have more than doubled. It’s annoying because it fits our “be boring, make money” investing style. We don’t need the thrill of companies that are operating at the edge.
This interview has been edited and condensed.