Recent award winner Paul Musson has been revamping the Ivy team at Mackenzie Financial Corp. since stepping into the lead role in February 2009.
"I think we limited ourselves too much in Canada in terms of the potential universe," says Musson. "We had three managers all doing Canadian (stocks) and the U.S. and I wanted to change it so there was direct responsibility and accountability for specific names and sectors."
Musson, a senior vice-president, investments, took on the leadership role when his mentor, veteran Jerry Javasky, retired. The Toronto-based Ivy team is responsible for close to $6 billion in total assets under management. Musson was the winner of the Morningstar Foreign Equity Fund Manager of the Year award at the annual Canadian Investment Awards gala on Nov. 30.
Under Musson's tenure, the Morningstar 5-star rated Mackenzie Ivy Foreign Equity 
has an annualized 10-year return of 2.3% compared with the median loss of 0.9% in the Global Equity category.
On the domestic side, however, performance has lagged in recent years. The $1.2-billion Mackenzie Ivy Canadian , which had avoided cyclical resources stocks, has a three-year annualized return of 4.4%. That's well behind the median 8.6% in the Canadian Focused Equity category, as of Nov. 30.
The disappointing domestic results prompted a Musson-led restructuring of the Canadian arm of the Ivy team. "We use Potash Corp. POT as an example," says Musson. "We decided to sell it back in '03, just before it went on this massive run."
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Although Musson was not involved with the fund at the time, the rationale for selling Potash stock was that none of the managers could predict the price of the potash commodity over the long term. Without being able to assess the discounted cash flow to determine a fair stock price, Potash stock was considered risky, despite its upside potential.
Today, if the risk of investing in a company is considered limited and it has a lot of upside potential, at least some of the holding will remain in the fund, says Musson. "If we're not in something, tell me why, and that's been one of the biggest changes for us in Canada."
Under Musson's leadership, four people have been added to the Canadian team. In addition to their regular roles, each of the managers will have the opportunity to travel to Asia to identify two or three top companies. As the managers' responsibilities and expertise expand, they will eventually become part of the team for the foreign-equity mandate.
The foreign-equity team totals three managers, including Musson, who has been involved with Mackenzie Ivy Foreign Equity since February 2000. Currently, only U.S. and European companies are held in the fund. This geographically skewed allocation reflects the fact that the trio didn't feel they needed to look elsewhere for quality companies. As well, they lacked a dedicated Asian specialist.
Using a bottom-up investment approach across all mandates, Musson and his team seek companies with sustainable competitive advantages. These may include technology, brand power and cost advantages. As well, companies have to meet Ivy's quantitative criteria, such as having strong balance sheets.
"What you cannot screen for," says Musson, "is whether or not the competitive advantages responsible for those superior returns will continue." Hence, the team's stock-picking decisions are based mostly on hands-on, qualitative research.
A favourite holding in both the Canadian and foreign-equity Ivy mandates is the fast-food giant McDonald's Corp. MCD. "We think it's got everything today, and just their scale and buying power, it's unmatched," says Musson. As well, "they're growing in emerging markets and in the States still."
Also held in both funds is the food and beverage products multinational Nestlé SA. The Ivy team views Nestlé as another well run business that meets all its investment criteria. "It's a very big company, they're global, well diversified," Musson says.
Both the Canadian and foreign mandates are concentrated in 25 to 30 names. Portfolio turnover tends to be low, with the managers taking a five- to 10-year view of their holdings. The Canadian fund's foreign-currency exposure is partly hedged. In the foreign mandate, a fully hedged version is available.
Musson, 50, a graduate of Montreal's Concordia University, received a business commerce degree with a finance major in 1988. Finding employment opportunities was challenging in the Montreal area after graduation, so he moved to Toronto in December 1990. He took on two jobs. One was a short-term contract with an insurance company and the other was working at night at a video store.
In 1992, Musson joined Wood Gundy Inc. (now CIBC Wood Gundy) as an assistant broker. He moved to the international sales desk at the firm in 1994. He received the CFA designation in 1995 and became head of the international equities group about three years later. He left the brokerage firm to join AIC Ltd., where he worked as a senior investment analyst from 1998 to 1999 before joining Mackenzie.
Musson considers the current Ivy team "the strongest ever," and still evolving. "We're investing in some of the world's best businesses," he says, "and we're very careful about not overpaying. If we end up being in a very slow economic-growth environment for the next five to 10 years, we actually think we'll do fairly well. We think valuation levels are quite reasonable today."
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