Three years ago, when the resource "super-cycle" was at its peak, Dina DeGeer and her colleague David Arpin, then at Bluewater Investment Management Inc., decided to reposition Mackenzie Canadian Growth. Although they are bottom-up growth managers, they identified macroeconomic trends which pointed to better investment opportunities in the United States and among Canadian companies that were focused on global sales.
"I had issues about different things, China being one of them," recalls DeGeer, senior vice-president at Toronto-based Mackenzie Investments, which she and Arpin, vice-president, formally joined in January. "We had a lot of discussions about what was happening there, and the global implications."
An economist by training, Arpin observed that following the 2008-09 financial crisis China accelerated the process of building infrastructure, which led to massive overbuilding. Because Chinese authorities intended to shift toward a consumption-based economy, at some point the building would have to decline. Indeed, this process began in 2011-12 and Arpin reckoned that investments in Canadian resource players were bound to be negatively impacted.
"We had a 15-year massive commodity cycle and we're now going through the un-wind period," says DeGeer, an MBA graduate from the University of Windsor who has been in the industry since 1985. "You've seen it in the commodity markets, with infrastructure commodities coming off. All businesses touching this area are having issues."
DeGeer maintains that it's sometimes crucial to focus on secular changes. "There have been long periods when you didn't have to worry about macro trends, like in the 1980s and '90s. The last decade has been more important, though," says DeGeer. "Every company in the portfolio is studied from a bottom-up perspective. Yet we're always thinking about what's hanging over us and putting it in context."
On the expectation that Canadian growth would slow and the U.S. offered better investment opportunities, DeGeer and her team gradually raised the foreign content from 25% to 43% of the fund. Moreover, the team also decided better performance would come from a select group of Canadian companies that are more globally focused. "They benefit from consumption being stronger outside of Canada and the currency weakness," says DeGeer, noting that the decision not to hedge the foreign currency exposure provided a strong tailwind to performance of the four-star rated fund.
Running a concentrated portfolio of about 30 companies, DeGeer points to strong growth attributes in U.S. information-technology specialty leaders such as 
Jack Henry & Associates Inc. (JKHY). The company, which has a market cap of US$6 billion, provides back-office and payments systems and has benefitted from the demand for outsourcing.
"The U.S. is quite different from Canada, as it has thousands of small banks and trust companies," says DeGeer. "Twenty years ago, they could conceivably build their own systems. But regulations have gotten tighter and the push for Internet and mobile banking means you have to build a secure banking app. That's not possible any more for small banks."
Jack Henry is one of two companies in this niche, says DeGeer, and it has always grown its revenues, even during the 2008-09 financial crisis. "Their client retention is close to 100%. It's a very consistent, annuity-style business that grows over time as banking gets more complicated," says DeGeer. The Mackenzie team uses a discounted-cash-flow analysis to value businesses and tends to initiate positions when shares are trading at a discount of at least 10% to intrinsic value.
But corporate management is a key ingredient, says DeGeer, noting that an uncomfortable decision by management may be reason to sell the stock. "We need to feel good about the people running the business. That's how shareholder value gets created over the long term."
Within Canada, DeGeer likes the growth dynamics behind CCL Industries Inc. (CCL.A), a leading maker of labels and packaging enclosures. "Fifty percent of its business is in the U.S., 28% in Europe, 7% in Canada and the rest elsewhere. They have operated in the global environment very successfully and profitably for many decades."
CCL is well diversified. It provides labels for the pharmaceuticals industry, which is heavily regulated and attracts premium margins. It's also a label supplier to makers of bottled water and alcoholic beverages. Historically, says DeGeer, CCL's net margins have ranged from 8 to 9%, adding that the company has an organic growth rate of 1 to 3%. CCL is expected to generate a free cash flow yield of 4.5% over the next 12 months.
"This management team is run by the best CEO, Geoff Martin, who I've met in Canada in 30 years," adds DeGeer. "He is the best allocator of capital. He's paid us out in increasing dividends and made smart strategic acquisitions. Over time, he's continued to grow the value of the business."
DeGeer says her team looks for companies that can grow in a tough economic environment. "If I had to find 100 Canadian companies that can do that, I would not be able to do my job," says DeGeer, noting that Arpin focuses on the U.S. market. "But I have a short list of 17 companies that can grow in this anemic backdrop."
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