The strong get stronger

Founded by Kanko in 2004, Black Creek manages three fund mandates for Toronto-based Hartford Investments:Hartford Global Leaders,Hartford International Equity and the equity portion ofHartford Global Balanced, for a total of $470 million. Launched in June 2006, Hartford Global Leaders had, at recent count, assets of $288 million in its various purchase options and a fairly concentrated portfolio of 25 names.

An interesting aspect of these dominant global players, says Kanko, is that a number of them with established bases and expertise in mature economies are growing their business in the higher-growth, developing parts of the world.

On the global equity market, Kanko notes that it was relatively flat in the first quarter of 2010, in contrast to the sharp rebound in 2009.

"Activity in the Global Leaders portfolio has been quite quiet in recent months," says Kanko. New money coming into the fund was used to selectively add to existing names and introduce a couple of new holdings. "We did most of our buying in both the fourth quarter of 2008 as well as in the spring of 2009, when the stock market bottomed."

	Cumulative returns during Kanko's tenure: June 2006 to February 2010
	Fund or Index	Cumulative Return
	Hartford Global Leaders A	0.1%
	MSCI World Index total return (C$)	-10.3%
	Median Global Equity mutual fund	-12.8%
	Morningstar Global Equity Mutual Fund Index	-14.6%
	Source:Morningstar Canada

Kanko says there are at times anomalies in the equity market, where investors overlook the merits of the business of certain companies. Therein lies the opportunity. Part of the Black Creek team's discipline is to calculate the intrinsic value of the business, based on its long-term view of the growth potential.

A dominant and increasingly global player in a number of Internet-related businesses is California-based eBay Inc. EBAY, which has been in the fund for three years and is currently in its top 10 holdings. Kanko "bought a lot more" of the stock in the spring of 2009, when it was in the "low teens, and it has roughly doubled since."

EBay has three business divisions: payments through PayPal; e-commerce sites including its auction business; and communications through its remaining 30% equity interest in Skype. Last November, eBay sold the majority of its holding in Skype to an investor group for almost US$2 billion.

There is, says Kanko, some necessary restructuring under way in eBay's online auction business to improve margins and revenue growth. "But there has been strong growth in its fixed-price format." Also, if PayPal "continues to grow at the pace that I anticipate, then the stock, despite the fact that it has risen sharply off its spring 2009 lows, remains undervalued."

Kanko also added to his holding in the U.S.-based medical device company Zimmer Holdings Inc. ZMH, which makes reconstructive implants such as those for knees and hips. Zimmer sells its products in the Americas, Europe and the Asia Pacific.

There is a risk, says Kanko, that its pricing in the United States might be adversely affected by the overhaul of U.S. health-care legislation. "This would hurt its revenue-growth prospects, but the stock's current valuation is reasonable and takes this into account," he adds.

Bill Kanko

Two companies based in Europe with good growth prospects in the developing countries, which Black Creek has recently added to the portfolio, are Erste Group Bank AG, based in Austria, and Galp Energia SGPS SA, which is based in Portugal.

Erste Group Bank, founded in Austria in 1819 as a savings bank, has developed into one of the largest financial institutions in Central and Eastern Europe. The group went public in 1997 so as to expand into those European countries with a less developed banking system.

Erste now has major retail and commercial-banking presence in Slovakia, Hungary, the Czech Republic, Croatia, Serbia, Romania and Ukraine. "Erste will benefit from the rising wealth in Eastern Europe," says Kanko. The group had some problem loans because they were denominated in strong European currencies rather than in the local currencies of countries where the borrowing took place. "This caused problems, when the global financial crisis hit," he says. "But Erste's banking rivals in those countries had even greater difficulties."

Galp Energia has a wide range of energy-related businesses including power generation. It is the dominant oil and natural gas group in Portugal and has a growing presence in Spain. The main areas of its exploration for energy are Brazil and Angola, both former Portuguese colonies.

"There is huge potential for the development of oil offshore Brazil," says Kanko, "and Galp Energia has an interest in various offshore projects there." These are longer-term projects, he cautions, and need the oil price to remain at sufficiently high levels to make them economic. "But they could materially add to Galp Energia's intrinsic value."

Kanko has sold down his holdings in a number of names "after the stocks had a strong run-up." Examples include Berkshire Hathaway Inc. BRK.A, Warren Buffett's holding company, and the aerospace/defence contractor, Rockwell Collins Inc. COL, both still major holdings in Hartford Global Leaders. Kanko also reduced his holding in Johnson Matthey PLC, a long-time position in the fund. This specialty chemicals company focuses on the auto sector and it also refines and markets precious metals.