Creating a concentrated portfolio is the hallmark of Wil Wutherich, the hands-on, sole manager of the $12.9-million Steadyhand Small Cap Equity.
"Right now, we have 18 stocks in the portfolio, so concentrated bets," says Wutherich, "and the only way to make that work is to do your homework -- and that's certainly what I spend my waking hours doing."
Wutherich, the founder and president of Montreal-based Wutherich & Co. Investment Counsel Inc., has managed the Steadyhand fund since February 2007. The relationship "clicked" with Tom Bradley, co-founder and president of Steadyhand Investment Funds Inc., and former president and CEO of Phillips, Hager & North Investment Management Ltd. Both men shared the philosophy that if you're going to try and add value to a portfolio, it's very tough to do so with 60 or 100 names.
As a "committee of one," Wutherich, research analyst and stock picker, is responsible for approximately $21 million in total assets under management, including private client accounts. He has a business partner who is essentially responsible for running the office, and the back office is outsourced to TD Waterhouse.
The Steadyhand mandate requires a minimum $10,000 investment and is only available in the provinces of Ontario, Manitoba, Saskatchewan, Alberta and British Columbia. As his own "second biggest client," Wutherich runs the fund in a manner as identical as possible to the model portfolio that represents his personal account.
"Concentrated, disciplined, long-term growth investing," sums up the strategy. While historically Wutherich's mandate has included as few as six stocks, the broader Steadyhand fund will characteristically hold 15 to 20 holdings. "I feel beyond sort of 10 to 12 names, the benefits of diversification are greatly diminished, provided you're not all in one industry."
Wutherich describes the market capitalization of companies he looks for as being the happy hunting ground of $50 million to $5 billion; the average market cap in the portfolio is about $1.2 billion.
Disciplined represents the dedicated research that goes into understanding a potential company. The lengthy quantitative and qualitative process can take weeks, or in some cases, even years before a stock is purchased.
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While Wutherich says that long term for a favourite holding is forever, characteristically it is a five- to seven-year time period, or a portfolio turnover of 19% or less. "I'd love to own these names until I retire. I'm 47 now, so when I'm 107 or so," he adds, laughing.
The bottom-up stock picking process includes a focus on strong management, opportunities for growth and balance sheets with little debt. Wutherich considers free cash flow as key, and that's where he considers himself a growth stock manager. However, his style is closer to growth at a reasonable price (GARP) since he will only pay what he feels are fair multiples for the growth of a company.
Wutherich favours companies that tend to be more steady-Eddy: a simple product, simple service that he can get his head around. "I always come back to companies like Sleeman Breweries," says Wutherich, "I can always understand a glass of beer."
A favourite long-term holding, sporting goods store operator Hibbett Sports, Inc. HIBB, was researched by Wutherich during a motorcycle trip he took to rural Alabama. When he met the owners about eight years ago, in a makeshift warehouse, the qualitative insights were invaluable.
"I thought, man, this is my kind of management," says Wutherich, "these guys are frugal, everything is about delivering the right product at the right price, and they do it over and over again."
Hibbett uses a "cookie-cutter" approach to the sporting goods stores, which has created a niche with very little competition. "So here's a company that generated a 49% return on invested capital in the last five years on average, 24% return on equity." The company, with approximately 900 stores across 23 states, operates mainly in the south-eastern United States, but it is growing and expanding outside of that quadrant.
Wutherich explored various academic routes before entering the investment industry. In 1981, he was accepted into law school at McGill University at age 18, but he realized that "I was just an immature brat, basically," so he took courses in anthropology instead, intending to pursue law school a year or two later.
When he realized he wasn't interested in law, he pursued mathematics, and to make it more practical, switched into computer sciences, before finally graduating with a bachelor of science in molecular biology. Despite excelling in the sciences, Wutherich's "underlying bet" was always business, so he did a transitory degree at McGill and moved to Concordia University, where in 1993 he earned an MBA.
After seeing a posting at Standard Life, he started in that firm's financial and strategic planning department, then moved to the investment department about two years later. In 1995, he was offered a position at Van Berkom & Associates, a Montreal-based small cap specialist. He left the firm in June 1999 to set up Wutherich and Co.
Positioning the fund for the future, Wutherich is "focused on individual stories that I think are going to deliver my benchmark 15% long-term total return," says Wutherich, "because I do look at dividends as well. I'm happy to hold companies through thick and thin if I'm convinced of the long-term outlook."
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