Jason Gibbs

Dynamic manager has been deploying cash amid market volatility.

Michael Ryval 23 December, 2011 | 7:00PM
Facebook Twitter LinkedIn

For equity-income manager Jason Gibbs, there's a big advantage in having a lot of cash on hand during volatile markets: Stocks are ready for the taking.

"The way we invest, we want to have a great balance sheet. To do that, you want to have cash available," says Gibbs, 38, manager of the $513-million Dynamic Dividend   and the $216-million Dynamic Global Infrastructure. "When markets are this volatile it's incumbent to dollar-cost-average in."

Until late October, Gibbs had 20% cash in the dividend fund, 18% in the global equity fund, and about 25% in the $497-million Dynamic Small Business. But he has been gradually spending that money as markets retreated in the wake of the European sovereign-debt crisis.

"You get days when German chancellor Angela Merkel says something that the market doesn't like," says Gibbs, a vice-president at Toronto-based Goodman & Co. Investment Counsel Ltd. "And if you get a chance to buy some of your best names, you have to be there to take advantage of it."

The cash balances have recently dropped to 8% for the dividend fund, 13% for the global-equity fund and 20% for the small-business fund. "Every day, we would come in and say, 'here are the stocks we own, and the ones we'd like to own and the prices we'd like to pay,'" says Gibbs, adding that the cash has been largely invested in existing holdings.

For instance, last summer, Gibbs and co-manager Oscar Belaiche added to their holding in Enbridge Inc. ENB, a leading pipeline utility. "It's got one of the best combinations of income and growth in the large caps we own. Its business is quite stable in the sense that it has mostly contracted cash flows with good customers." Besides generating growth from new infrastructure, Enbridge has a 2.8% dividend yield and 10% dividend growth every year. "That's tough to find."

Jason Gibbs

On the small-cap side, Gibbs likes Morneau Shepell Inc. MSI. The firm is a leading provider of outsourcing services to human-resource professionals and blue-chip companies. "It's got very stable, consistent cash flow," says Gibbs, adding that the stock pays an 8% dividend yield.

In a similar vein, he bought more shares of Innergex Renewable Energy Inc. INE, which generates energy from hydro-electric and wind plants, and benefits from 20-year contracts that have inflation protection. It has a 6% dividend yield. "That's the beauty of having cash available," says Gibbs. "You can take advantage of market volatility when you get the chance."

An Ottawa native, Gibbs is an accountant by training who wanted to work in the investment industry and seized an opportunity when it came up. After graduating with a bachelor of accounting degree from Brock University in 1994, he articled with Deloitte & Touche. He spent four years at the firm and then moved to Canada Trust to manage its financial reporting. At the same time, he enrolled in the chartered financial analyst (CFA) program.

In 2000, Gibbs moved to Dynamic Funds and helped manage fund operations while obtaining his CFA designation. In 2002, after working closely with Belaiche, he joined the money-management side as a research analyst.

In 2007, Gibbs was promoted to portfolio manager. As part of a six-person team headed by Belaiche, Gibbs helps oversee about $15 billion in assets.

Gibbs, who is co-manager of the small-business fund, limits holdings to about 3.5% of fund assets. Holdings in the global equity fund are limited to a higher level, 5%, since many are highly liquid large-caps.

Portfolio turnover has been high, at 108% in 2010 for the dividend fund and 94% for the small-cap fund. Gibbs attributes this largely to market volatility.

The global equity fund and small-cap fund both currently have 5-star Morningstar Ratings. Meanwhile, Dynamic Dividend is a 3-star Morningstar-rated fund.

However, the dividend fund performed in the first quartile in the Canadian Dividend and Income Equity category over the most recent months, and in the second quartile over two, three, five and 10 years. "We tend to have lower exposure to the banks than some of our peers. And we like to be more diversified," says Gibbs.

While Gibbs does not like to make market forecasts, he maintains that conditions could remain challenging. "We're in a low-growth environment. And interest rates will stay low for some time, mainly because of the de-leveraging process that continues to play out." But Gibbs considers stocks to be cheap, especially compared to the alternatives such as government bonds.

That's why Gibbs likes steady income earners such as McDonald's Corp. MCD, a holding in the dividend fund. "As the middle class gets hollowed out, it's looking for cheaper dining-out alternatives. And as a business, McDonald's is attractive because it pays a 2.9% dividend yield, which is growing 10% a year."

Facebook Twitter LinkedIn

About Author

Michael Ryval

Michael Ryval  is regular contributor to Morningstar. He is a Toronto-based freelance writer who specializes in business and investing.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility