Noah Blackstein readily admits that over short periods his funds, including the $850-million Dynamic Power American Growth, are more volatile than average.
"Over any one-year period, sure, we can be volatile -- but so can the index," says Blackstein, vice-president at Toronto-based 1832 Asset Management LP, formerly known as GCIC Ltd. "The S&P 500 was down over 40% in 2008. The difference is that when an active manager drops 40%, they blame the manager. When the index drops 50%, they blame themselves."
For the year ended Dec. 31, the U.S. equity fund returned 48.6%, outperforming the 39% median return in its category. However, some bear-market years have proven to be very painful, such as 2008 when the fund lost 44.1%, compared with the median loss of 25.8%.
Blackstein prefers to be judged on a long-term basis and points to a track record that extends more than 15 years. Over that period, , the 5-star rated fund returned an average annual 6.3%, compared with 0.9% for the median. Similarly, over 10 years, the fund averaged 9.5%, versus the median 3.9%.
The $718-million Dynamic Power Global Growth Class has likewise outperformed its peers. Introduced in January 2001, the fund had an average annual return of 10% over the last decade, more than double the median return of 4.3%. Most recently, it returned 40.6% in 2013, compared with 28.1% for the median return in the Global Equity category. In 2008, though, it lost 47.2%, which was much worse than the median loss of 29%.
"The reality is that no one has ever lost money in our funds -- unless of course they sold," says Blackstein. "We do what we do, and don't change what we do. We don't manage to an index. We try to find 20 to 25 high-growth companies that have the potential to be considerably larger, without consideration of geography or benchmark."
Blackstein runs highly concentrated growth-stock portfolios, which tend to favour stocks in the technology, health-care and consumer cyclical or discretionary sectors. Typically, positions are about 4% to 6% of fund assets. Annual portfolio turnover tends to be very high -- 344% for Dynamic Power American Growth as of June 2013 -- as Blackstein trades around core holdings.
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As a bottom-up manager, Blackstein has identified a number of Asian growth firms that coincidentally fit themes such as higher consumption patterns in China.
Take Qihoo 360 Technology Co. Ltd. QIHU, the No. 2 search engine in China. Dynamic Power Global Growth holds an ADR listed on the NYSE. "It's been gaining market share from Baidu, the leading search engine, and is up to 20% -- and heading to 30%," says Blackstein, who takes a three-to-five year view of earnings potential.
Blackstein argues that China's advertising spending on the Internet has a long way to go before it matches what's occurring with heavyweights such as Google Inc. GOOG. "You have this continual movement of people online and potential for increased advertising dollars as China transitions to a consumer economy. That will benefit some of the Internet players, especially the advertising-based ones."
A Toronto native, Blackstein entered the investment industry in 1993, a year after graduating from the University of Toronto with a BA in economics and political science. "I was always fascinated with markets and the financial system," he recalls. He began working in the client service department at BPI Capital Management Corp., quickly transitioned into equity research and became an associate portfolio manager responsible for large-cap equities.
In 1997, Blackstein joined his current employer, which at the time was named Goodman & Company Investment Counsel, and has been part of the growth team since then.
Blackstein likens his methodology to a baseball line-up, where there is one team in the field, another team "on deck" comprised of companies that might qualify for the portfolio, and players on the disabled list. "There are growth companies that stumble, and have some bad quarters, but they still have what we're looking for. We ask ourselves, 'Was that a one-quarter phenomenon?' There is always fluid motion between these areas on the diamond."
Meanwhile, having weathered two severe market downturns, Blackstein is undeterred by the challenges. "If you told me I had to be a value manager, I would probably have retired a long time ago," he chuckles. "But I enjoy finding the next generation of opportunities."
One example is Priceline.com Inc. PCLN, Blackstein's largest holding in both his global and U.S. equity funds. It, too, is a beneficiary of the growth of the Internet, and has radically changed the travel business. "It's still in its infancy as only about 10% of travel is booked online today," says Blackstein. "They haven't even tapped the global corporate market. Priceline is a huge company, and growing at 20%-plus. It's the fastest-growing Internet company out there."
Blackstein continues to be surprised by the opportunities. "I remember thinking after Steve Jobs had died. 'Gosh, what a great run we had with Apple! Will I ever see another Steve Jobs in my lifetime?' Then along come Jim Bezos [at Amazon.com] and Elon Musk, at Tesla Motors and Solar City. The great thing about this business is that there are so many amazing things going on."
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