As former chief investment officer at Mackenzie Financial Corp., Norman Raschkowan's task was to provide a big-picture view for the Toronto-based firm's portfolio managers and institutional clients. Since assuming leadership of the Maxxum group of funds, following the July retirement of Bill Procter, Raschkowan's top-down perspective is still important, although secondary to the stock-picking process.
"It's 70% stock selection, 30% macroeconomics. The generation of value-added in portfolios comes largely through stock selection," says Raschkowan, executive vice-president, chief North American investment strategist and manager of the $1.3-billion Mackenzie Maxxum Dividend. "The 'macro' comes in when you're debating which sectors to underweight or overweight. Both are important from a risk-adjusted-performance perspective."
Raschkowan favours stocks with higher dividend yields than the market, lower price/earnings or price/book ratios, better returns on equity, and earnings-growth potential.
He's also looking for companies with $1 billion or more in market capitalization, as opposed to the all-cap approach employed by Procter and his team. "It's appropriate given the market we're in." He limits holdings to around 8%, although the more typical weighting is 1.5% to 2%.
Raschkowan is a "core" investor who blends value and growth elements. While he tends to have a value bias, he favours companies that can grow their dividends. "You want to make sure they have characteristics that make them competitive," he adds "And they're in a position where they can grow."
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Bank of Nova Scotia BNS and Royal Bank of Canada RY are representative holdings. "You are seeing steady increases in loan growth, and unusually wide margins from lending. They are all doing an excellent job of pursuing growth strategies," says Raschkowan.
He notes that Scotiabank, in particular, has a stable base at home, while pursuing expansion in Latin America and Asia. "They've also made some interesting acquisitions in the wealth-management sector, with holdings in CI Financial Corp. CIX and DundeeWealth Management Inc. DW."
Raschkowan likes Scotiabank's 4% dividend yield and its growing earnings. "And they have a history of regularly increasing dividends," he notes. Since assuming the portfolio he has added to the holding.
A Montreal native, Raschkowan has been in the investment industry since 1980, when he graduated from McGill University with a bachelor of commerce in economics and finance. Long interested in investing, he joined Standard Life Investments Inc. as a credit analyst. In 1984, he switched to the equity team and was a U.S. equity portfolio manager. The following year, he earned an MBA at McGill in international business and real estate.
In 1988, Raschkowan moved to the Canadian equity side at Standard Life, and managed institutional accounts. Within a year, he was named head of the equity team. In 1990, he was promoted to senior vice-president and head of Canadian and U.S. equities. In 2005, he was appointed chief investment officer.
Seeking a new challenge, Raschkowan joined Mackenzie Financial in October 2007 as CIO. "It was a great opportunity -- and a more challenging mandate," he says, noting that in his new role he can invest globally, as opposed to the domestic focus at Standard Life.
One of the new hires that Raschkowan has brought to the Maxxum team is Dinka Kucic, previously vice-president at Standard Life. Kucic is lead manager of the $872-million Mackenzie Maxxum Dividend Growth.
Raschkowan has his work cut out for him, since the 1-star rated Mackenzie Maxxum Dividend lagged the median fund in 2007 and 2008 in the Canadian Dividend & Income Equity category. Part of that was attributable to the high foreign content that was unhedged. "Bill adopted a tactical approach to hedging in the last few years," says Raschkowan, adding that the fund outperformed the median in 2009.
In addition, the fund underweighted economically sensitive stocks such as industrials, energy and materials in order to reduce volatility. Raschkowan intends to broaden the fund's sector exposure. "We're recognizing the investable universe has a meaningful number of energy and industrial names. There are some great businesses."
One such name is Diageo PLC, a London-based dominant player in the global alcoholic- beverages industry. "It's one of the few ways you can get exposure to that more stable business," says Raschkowan, adding that foreign content accounts for about 20% of the fund's assets.
Still, he is focusing mostly on domestic holdings, such as Astral Media Inc. ACM.A. The diversified media firm is active in radio, specialty television channels and outdoor advertising.
"They generate a lot of free cash flow, and have been able to steadily expand their business," says Raschkowan, noting the firm is either first or second in most of its markets. "They're almost an oligopolistic franchise."
Raschkowan believes economic conditions are steadily improving, although the markets may continue to be volatile. "Company earnings are coming through and profit margins are very strong," he says. "The corporate sector has never been in such good shape coming out of a recession."
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