Tony Genua, lead manager of five-star AGF Global Select, is both agile and selective in his investment approach, and has achieved category-beating returns by capitalizing on shifting economic trends and changing lifestyles. He zeroes in on companies with superior long-term earnings and sales growth, strong management and a proven ability to innovate.
“The idea of participating in market leaders is exciting to us,” says Genua, Toronto-based senior vice president and portfolio manager with AGF Management Ltd., who took charge of the fund in February 2013. He also manages various other U.S. growth equity portfolios at AGF, including bronze-rated AGF American Growth.
His style is “high conviction,” but he also maintains healthy portfolio diversification, holding between 25 and 40 names. Recently, the number of stocks stood at 37.
“I believe in a concentrated, growth-oriented portfolio, made up of best ideas. Certain activities and patterns of human behavior are leading to increased share of wallet for those companies that can participate”, Genua says.
He is quick to make changes when stocks become fully valued or if more attractive opportunities arise. He reviews the entire portfolio every day as though starting with a blank slate – anything that is not a considered a “buy” is a “sell.”
“The benefit of recent volatility in stock markets is that stock prices represent better valuations at current levels than at the market top in September, while growth prospects remain positive”, Genua says.
He notes that interest rates are expected to rise, albeit at a slower pace, and some political friction around international trade continues, but those overhanging issues are not news. Nevertheless, he always keeps a sharp eye open for change in the direction or pace of a trend, or elevation of risk.
One potential risk is that inflation and interest rates could rise more than expected. Another is that global trade tensions and rising protectionism could escalate.
“The trade situation may get worse before its gets better, as we saw with the U.S.-Canada-Mexico trade agreement, and we may see more posturing, positioning and ‘art of the deal,’” Genua says. “But in the end, China needs the U.S. and the U.S. needs China.”
After several years of below-average volatility, stock market patterns could be returning to more normal levels, Genua says. But for an active manager, volatility can present profitable trading opportunities.
Genua points to U.S. corporate financial results for the third quarter, showing profits for companies in the Standard & Poor’s 500 index were up by 27%, a slightly higher year-over-year rate of growth than at the mid-year mark. However, with stock prices falling in the latter months of 2018, price-earnings multiples are at more attractive levels, creating relatively better odds for the market to rise going forward, he says.
In fact, as markets sold off in the autumn, Genua aggressively redeployed cash, lowering the fund’s cash position to 7% of assets by late November, down from roughly 20% earlier in the fall.
The current top holdings in AGF Global Select represent a selection of companies with presence in online shopping, online music and entertainment consumption, health and fitness and pharmaceutical products. Some of the fund’s top holdings include several names easily recognizable to consumers, including Spotify Technology SA (SPOT), Lululemon Athletica Inc. (LULU), Amazon.com Inc. (AMZN) and Netflix Inc. (NFLX).
While the fund currently has 67% of assets allocated to U.S.-based holdings, companies could be based anywhere in the globe, including emerging markets, Genua says. The fund will invest in companies of various sizes, but the minimum market capitalization requirement is US$500 million.
Country allocations in the fund are a based on how much Genua and his team likes a company’s underlying business, not on top-down geographic allocation decisions. Genua says the country in which a company is domiciled often does not reflect the source of its sales and revenue in a global marketplace.
For example, Spotify, a popular music streaming company based in Stockholm, Sweden, has a global base of customers in almost 80 regions, including most of Europe, most of the Americas, Australia, New Zealand and parts of Africa and Asia.
“We invest in Spotify because it has a dominant market share in streaming music to listeners around the world,” Genua says.
Likewise, Lululemon is riding the global health and wellness trend and has carved out a niche in high-quality, stylish athletic apparel inspired by yoga but also popular for running, working out and general leisure wear. It is enjoying growing sales in Canada and internationally, both online and in stores.
Strauss Group Ltd., also in the top 10, is one of the largest food manufacturers in Israel, focusing on dairy products, chocolate, coffee, and dry snack foods. It has operations around the world and is the leading coffee company in central and Eastern Europe.
Two U.S.-based companies in the portfolio, Amazon and Altaba Inc. (AABA), are poised to take advantage of the continuing expansion in online retail sales. With online sales accounting for only 10% of retail sales in the U.S., the growth potential is vast and exciting, Genua says. Altaba owns a 15% stake in fast-growing Alibaba Group Holding, the largest online retailer in China.
AGF Global Select’s top holdings also include specialty pharmaceutical companies, including Sarepta Therapeutics Inc. (SRPT), and Illumina Inc. (ILMN), a biotech firm that develops systems for the analysis of DNA.
Earlier this year, the team sold off GW Pharmaceuticals PLC (GWPRF) after a healthy gain in the stock price. The biopharmaceutical firm has developed an anti-seizure drug from cannabidiol, which is derived from cannabis and helps patients suffering from diseases such as multiple sclerosis and epilepsy.
Some profits were also taken in Shopify Inc. (SHOP) as the stock price rose. The technology firm, a Canadian success story, offers e-commerce services to small businesses, including payment systems for online sellers.
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