Focusing on capital preservation and long-term generators of shareholder returns, Anish Chopra incorporates three main investing strategies as the lead manager of TD Canadian Value.
One strategy is to emphasize strong sectors. "An example would be the whole banking sector," says Chopra, "where you're getting attractive valuations, good returns on capital and great management teams."
The second investment strategy is looking at an entire sector for out-of-favour opportunities, being very careful on quality. Chopra's third strategy is to include smaller- cap companies that tend to be overlooked by the market.
Chopra, managing director of TD Asset Management Inc. in Toronto, has managed the fund, launched in November 2000, since April 2009. The other members of the five-member Canadian value team are portfolio manager Craig Bethune and three other investment professionals. The team manages approximately $1.7 billion.
Value companies are defined as relative value, with a discount to peers, rather than extremely deep-value names with issues that may take longer to resolve than the time horizon that the managers favour.
Quality investments, considered essential, are defined as companies with solid balance sheets, strong franchises, barriers to entry and sustainable competitive advantages.
Starting with a universe of approximately 1,000 publicly listed companies in Canada, Chopra and his teammates employ extensive quantitative and qualitative analysis screens.
While fundamental analysis is considered essential, some investment ideas come from understanding and the "experience of being an investor over a long time horizon," Chopra says.
The normally fully invested portfolio holds 60 to 80 stocks, and the managers have a "modest" preference for dividends. Chopra is willing to look at value opportunities in all sectors and market capitalization, assuming the market cap is big enough from a risk-management perspective.
Currently, approximately 70% of the fund is held in large-cap companies, with the remaining 30% in small to mid-cap names. The portfolio can hold a maximum of 10% in foreign investments that are predominantly opportunity driven and are held for diversification.
The fund is diversified across all of the 10 major TSX sectors, and "generally, the fund is plus or minus 5% to 7% from the TSX Index," says Chopra, while also differing in the names that are held.
Among the top five holdings, Canadian Imperial Bank of Commerce CM
is considered one of the best examples of a company that meets the team's investment parameters. Reflecting back on the spring of 2010, "the main stumbling block at the time was the losses they were incurring in the credit-card business," says Chopra.
"When we looked at CIBC, we thought, okay, we have a margin of safety, we have a strong balance sheet generally, past (economic) environments." Since then, credit-card losses have diminished, earnings have increased, "and the stock price has responded."
Manulife Financial Corp. MFC
is another example. "We've been buying all the way down," says Chopra. "In the case of a precipitous decline, they could raise equity, cut the dividend even more, or sell a piece of their business. So that's what we look for: sound balance sheets, opportunities to understand how the company can come back, how earnings can come back -- and can we wait it out during the tough times."
The team can keep core holdings in the portfolio for very long periods, while trimming or changing the weights over time. On average, though, a stock will be held for two to three years. The sell discipline is based on finding better opportunities elsewhere.
Along with almost 15 years of industry experience, Chopra draws on an extensive academic background. In 1994, he received both an honours BA and a masters of accounting (gold medalist) from the University of Waterloo. In 1995, he received the Chartered Accountant designation.
During the co-op program at Waterloo, he spent some time at the accounting firm KPMG, then joined TD Securities in 1996 as a member of the mergers and acquisitions group.
In February 1998, he moved to TD Asset Management, working on managing proprietary capital, gaining experience in the whole global perspective of value opportunities. In 1999, he received the CFA designation.
What does the future hold for TD Canadian Value? "When you look at the leading economic indicators," says Chopra, "they're still positive, and we believe in a modest GDP growth scenario. We just think the markets are probably going to be volatile, and if so, we will take advantage to buy holdings that we want and liquidate some of our positions."