Cash isn't exactly king for Robert Swanson, principal and chief market strategist at Cambridge Global Asset Management, but lately it's playing a more prominent role in the CI funds that he manages. He allowed cash positions to build at the end of 2013 and in the first quarter of this year, when he says valuations continued to move to new highs even as the economy was losing momentum.
Swanson says that from a longer-term perspective, valuations appear to be expensive. "People are sort of wrestling with slow growth, higher multiples. I think there's still too much uncertainty, so we're erring on the side of caution to protect investors' capital."
Based in Boston, Swanson is the lead manager of the $200-million CI Cambridge Global Dividend and co-manager of the $2.4-billion CI Cambridge Canadian Asset Allocation Corporate Class, among other funds. The dividend and asset-allocation mandates currently hold approximately 11% and 26% in cash respectively. "When individual companies and the markets fall off, we'll take the money and redeploy it at more favourable prices," Swanson says.
Swanson's equity-investment style can be described as "quality at a reasonable price." For the global dividend fund, he favours larger, more established companies that generate sustainable cash flow and income. And he's looking more favourably on U.S. companies than European ones because the U.S. is on "a higher trajectory" in terms of economic recovery.
Along with looking for solid fundamentals, Swanson and his colleagues do their due diligence on company management. "We want to understand what motivates management," says Swanson, "know how they are compensated, what their bonuses are determined by. We know that drives behaviour, we've seen that enough times."
In Cambridge Global Dividend, Swanson invests only in dividend-paying companies. Currently, the portfolio's expected annual yield is in the area of 2.5% to 3%. With the trend toward higher valuations in North America, "those high-quality names are getting expensive," says Swanson. "The trade-off was to sacrifice yield for future dividend growth."
Among financial-services companies, U.S. Bancorp USB is the largest U.S. bank holding in Swanson's portfolios. "The banks are an area that I feel is in the next leg of this cycle," says Swanson. "We're definitely seeing better valuations. And U.S. Bancorp weathered the recession better than any other bank."
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In the information-technology sector, Swanson's holdings include software giant Microsoft Corp. MSFT. The company is "slow growing, consistent, a good cash-flow generator."
A recent addition to CI Cambridge Global Dividend is Thomson Reuters Corp. TRI. The business-information publisher has brought in new management and has become a more efficient operation. "A high-quality company that sort of lost its way and now they're coming back," is how Swanson describes Thomson Reuters. "We're expecting earnings to fall into better valuations."
Swanson, 53, is a senior member of a 10-person research team at Cambridge, which includes analysts and sector specialists. Cambridge, whose legal name is CI Global Investments Inc., manages $13 billion and is a wholly owned subsidiary of Toronto-based CI Investments Inc.
After receiving a B.Sc. in finance from Northern Illinois University in 1983, Swanson began his career as a portfolio manager at Merchandise National Bank. In 1987, he received the CFA designation.
Pursuing evening study, Swanson received an MBA from Northwestern University in 1989. That year, he moved to Bank of America Investment Advisors where he was a senior portfolio manager responsible for developing and managing institutional and high-net-worth accounts.
In 1999, Swanson joined Fidelity Investments, where he was the lead portfolio manager of several mutual funds with combined assets under management exceeding $20 billion. In addition, he was head of Fidelity's Canadian asset-allocation team. He joined Cambridge in 2011.
Swanson's big-picture concerns include the choppiness of the recovery on a global basis, the prospects for higher interest rates, and current valuations. Even so, he says, "we remain cautiously optimistic."
One positive, says Swanson, is that many multinational U.S. companies have reduced their costs and are operating very efficiently. Still, "we haven't seen the recovery of the consumer," he says, "and that has me a little concerned." If consumer spending remains tepid, he expects the recovery in the U.S. to be a bit slower than what people expect.
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