By Sheldon Gordon
Triax Investment Management Inc. knew what it was getting when it hired Robert (Bob) McWhirter away from Royal Bank Investment Management Inc. last August. Its new portfolio manager had won renown not only as a technology guru with a record of stellar returns, but as a stock-picker who combined quantitative computer modeling and technical analysis.
Before joining Triax, McWhirter, 48, had spent his entire 23-year career with companies that are now part of the Royal Bank Financial Group. In 1977 he graduated from Sheridan College in Oakville, Ont., after studying business administration and majoring in marketing and logistics. But it was a course in accounting and investing that got him interested in Bay Street. He obtained his CFA in 1992.
His first exposure to the investment industry was in 1977 as a broker trainee with Dominion Securities (now RBC Dominion Securities). After working there as an investment advisor, he shifted into discretionary money management at DS in 1980.
Rising to vice-president and portfolio manager at RBIM in 1989, he served private clients, corporate pension plans and endowments.
It was at Royal Bank that he began using the technical analysis and quantitative stock selection model that now define his investing style. He moved over to RBIM’s mutual fund side in 1991, and was soon managing the technology portion of Royal’s Canadian Equity and Royal Balanced funds. He was deploying more than $2-billion in assets.
As of May 2000, his portfolio was up sharply over three years, prompting a flurry of requests from investors to invest solely with him. But McWhirter was only one member of a 12-person equity team, and his decisions on foreign content had to be approved by another manager. Eager for the opportunity to run his own fund, he left the Royal last July.
Triax hired him to run the tech-focused Northwest Specialty Innovations, launched in November, and a private tech fund for high-net-worth clients. (Northwest Mutual Funds Inc. and Triax are both owned by Toronto-based First International Asset Management Inc.)
Last February, Northwest also tapped him to replace Brendan Kyne as the manager of its underperforming Northwest Specialty Aggressive Growth and Northwest Specialty Momentum (which McWhirter has dubbed “Grow and Mo”).
McWhirter’s big equity pool is the Triax CaRTS Technology Trust, a new hybrid investment vehicle. The first one closed last November with $222-million subscribed. (CaRTS stands for Capital Repayment Target Securities.) A portion of the capital is invested in a forward contract in order to provide a guaranteed long-term return. The remainder, about $90-million, is invested in tech stocks with a market cap of at least US$1-billion each.
McWhirter’s quantitative approach relies on a computer model that weighs 12 factors; these include quarterly earnings momentum, return on equity, variability of historical earnings, price-to-earnings and price-to-book ratios and four different time frames of stock-price performance.
The model ranks 595 Canadian and 3,200 U.S. tech stocks for the mutual funds (and a somewhat smaller universe for the CaRTS trusts, with their US$1-billion minimum market cap). McWhirter then chooses from among those ranked in the top one-quarter to one-third of the database, and uses technical analysis for timing the purchase or sale.
Recently, however, he has passed up names that, though highly ranked by the model, have price-earnings ratios exceeding 60 to 80. While the stocks had good prospects for earnings growth, McWhirter believes investors would shun them as too pricey in current market conditions.
McWhirter is comfortable holding 15 to 20 names in a portfolio. He typically keeps them as long as they remain in the top one-quarter to one-third strata of the ranking model, though he may top up (or reduce) his core holding of a stock based on intermediate buy (or sell) signals from technical analysis.
Recently, he has been long on cash—Northwest Specialty Innovations and in the CaRTS Technology Trust are only 20-30% invested. Over the long term, however, McWhirter intends to be 95% invested. “We believe we are on the verge of a fairly strong intermediate buy signal [from technical analysis]", he says, “and we await confirmation of that before committing more money to the market.”