Stephen Jenkins- Harbour Advisors

Veteran manager prefers select, high-quality cyclical businesses over "safer" consumer companies.

Michael Ryval 14 June, 2013 | 6:02PM

A bottom-up investor who seeks reasonably priced companies that benefit from a growth tailwind, Stephen Jenkins is patient about buying stocks for CI Harbour  . Currently, he's holding a sizeable 15% in cash.

"That's a function of taking some money off the table in situations that have run (up in price)," says Jenkins, co-chief investment officer and senior vice-president, investments at Harbour Advisors, a unit of Toronto-based CI Investments Inc. "We'll also take some positions down to a lower weight if valuations become stretched. In some cases, we will sell things outright."

One recently discarded holding was Cisco Systems Inc. CSCO, the U.S. manufacturer of networking systems. "It was a combination of valuation and longer-term concerns about the business that I've had, in terms of its competitive positioning. My concern is that it may worsen down the road," says Jenkins, adding that he took advantage of the share-price strength and sold out.

"I wouldn't read a lot into our cash weighting," says Jenkins. "If there's no opportunity to invest in companies that we're comfortable with, we're quite happy to sit on the sidelines and wait for those opportunities."

Jenkins runs concentrated portfolios and holds about 30 positions. Single holdings can run as high as 5%. As he tends to take a long-term view, portfolio turnover is also very low. For the six months ended Sept. 30, it was just 1.3%.

Top holdings in the fund include Microsoft Corp. MSFT, CIBC CM and Diageo PLC, which trades on the London Stock Exchange. These names also appear in CI Harbour Growth & Income  .

Jenkins notes that high valuations are ascribed to many consumer-oriented companies perceived to be "safer" because of their high dividend yields. These are the ones which he's been reducing. "But the flip side of that is that many cyclical businesses -- even materials and resources -- are out of favour. I'm more inclined to put some money there, very selectively, in high-quality companies -- if this trend continues."

A graduate of Wilfrid Laurier University, where he earned a bachelor of business administration in 1990, Jenkins has been in the investment industry for more than two decades. He began at Royal Insurance as a junior analyst in the investment department and learned the ropes of value investing. "I got a lot of exposure there, given that it was a small team. It was very good training."

Early in 1996, Jenkins joined Mackenzie Investments, where he worked as a senior analyst on the Ivy funds, which were co-managed by Jerry Javasky and Gerry Coleman. The next year, when Coleman was lured to CI, Jenkins followed him.

In January 2002, Jenkins's responsibilities were expanded when he took on CI Harbour Foreign Equity Corp. Class  . The following year, he assumed responsibility for CI Harbour Foreign Growth & Income Corporate Class  .

Last November, as part of a succession plan, Coleman and Jenkins switched mandates as Jenkins assumed the larger domestic portfolios and Coleman took over the smaller global funds. "Gerry and I manage these funds in a similar manner," says Jenkins, adding that he was always very involved in researching Canadian companies.

The change has meant that Jenkins is responsible for about $12 billion in assets, or about 12 times more than previously. "But I haven't come into this blindly as I've been involved with the growth of the funds. So it's been a seamless transition."

The flagship CI Harbour has been a first and second-quartile performer over five, 10 and 15 years in the Canadian Focused Equity category. However, it slipped into the third quartile in the 12 months ended May 31. Jenkins attributes that to the weakness in materials-related holdings such as Barrick Gold Corp. ABX and the underweighted telecommunication and utilities stocks which he regards as expensive.

That positioning also hurt CI Harbour Growth & Income in the past 12 months. It was aggravated by an underweight allocation to fixed income, which Jenkins admits caused the fund to miss out on the bond rally. However, over the last 10 and 15 years, the fund is one of the best performers in the Tactical Balanced category.

Given his bias in favour of cheaper growth stocks, Jenkins is now focusing more on the energy sector, which accounts for 28% of CI Harbour. "Energy is looking very attractive, especially in Canada."

Cenovus Energy Inc. CVE, a leading integrated oil and natural gas producer, is one holding that Jenkins has added to. "Its focus is on the development of its Canadian bitumen or heavy-oil assets and U.S. refinery assets, although they have a well established crude and natural-gas production base in Alberta," says Jenkins. He adds that the company will be transitioning from a 50-50 mix of oil and natural gas to an 85-15 mix in favour of oil over the next decade.

"By 2021, Cenovus aims to increase oil production capacity to about half a million barrels a day," says Jenkins. "It's a quality, solid-growth story with a very capable management team, robust cash flows and a prudent balance sheet."

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Michael Ryval

Michael Ryval