In managing resources mandates, Mackenzie Financial Corp.'s Benoit Gervais keeps his eye on the big global picture.
"We still have that long-term view that demographics are changing the face of the earth," says Gervais, vice-president, investments, at Mackenzie in Toronto. "The new consumers of resources are not the ones that we used to have," he adds, citing developing markets such as India, China and Brazil.
Gervais co-manages Mackenzie Universal Canadian Resource,Mackenzie Universal World Precious Metal 
andMackenzie Growth, with his mentor Fred Sturm. The two have worked closely together since Gervais joined the firm in 2001.
Now a mentor himself, Gervais has an analyst working with him in his office. The small team, which is looking to add another member, is responsible for more than $8 billion in total assets under management.
In the resources mandate, Mackenzie Financial's approach to stock picking is focused on selecting the leading firms in each of the sub-sectors. Sturm's "10,000-foot macro view" factors in the impact of the economic cycle, global demand for various commodities and inherent risks.
Diversification by industry segment is considered paramount to risk management within the volatile resources sectors. From 50% to 55% of Mackenzie Universal Canadian Resource is held in the energy sector, divided among utilities, pipelines, refiners, service companies, and others. Elsewhere, precious metals, base metals, forest products and industrial products each constitute about 10% of the portfolio.
As is evident in the geographic mix of its holdings, Mackenzie Universal Canadian Resource is global in scope. At the end of January it held 48% of its portfolio in foreign securities, compared with the median of 18% in the Natural Resources Equity category.
The fund currently holds 41% in Canadian equities and 28% in U.S. equities. The top 30 holdings -- mainly large capitalization companies -- make up more than half of the overall portfolio and the top 50 account for more than 80%. That leaves a "long tail" of positions in the 0.3% to 0.5% range in small-cap companies, which can boost the number of holdings in the portfolio to as high as 100.
Three-quarters of the stock holdings share production growth and earnings-driven growth potential that are not generated by commodity prices. Potash Corp. of Saskatchewan Inc. POT, which is among the fund's largest holdings, illustrates the managers' growth criteria. Potash Corp. is one of the last commodity producers to get the price lift in this environment, says Gervais, "but it's also getting the volume growth because farmers are coming back. Potash is a stable company, well managed, a world-class asset."
A decade-long holding is Randgold Resources Ltd. GOLD, a "$5-billion plus company on to its fifth world-class gold discovery." The Mackenzie team is a long-term holder of Randgold, says Gervais, "because geologists keep on finding more, putting it into production, making money. They only have two mines and over the next five years, they'll put two more mines into production."
The Mackenzie team has been focused on mitigating the impact of market downturns such as the one experienced in 2008-2009. "So we're borrowing a few tools from hedge funds," such as futures trading, says Gervais.
The team's buy and sell criteria are based on risk mitigation. To that end, the team runs valuation metrics on all of its companies. When it comes to the small-cap companies, the analysis is focused more on expectations of earnings and cash flow, and whether they are deliverable.
Investing in resources is a natural fit for Gervais, 36, who earned a degree in mining engineering from McGill University in 1997. He worked briefly as an engineer in the coal-mining industry before pursuing further studies.
In 2001, he graduated with a master's degree in mineral economics from the Colorado School of Mines. Upon graduation, he joined Mackenzie as a research analyst. He received the CFA designation in 2005, when he officially became a registered portfolio manager.
Hands-on research is considered "absolutely" essential to the Mackenzie team's investment process. Travelling off the beaten track, Gervais spent a week in Siberia last November to meet with oil companies that are "twice the size of Suncor Energy."
While Canada is rich in resources, we do not have exposure to all of the sub-sectors, says Gervais. "Having core funds with Canadian representation is reasonable for long-term holders," he says. "But if you want to add returns over time -- because there's volatility -- you owe it to yourself to have some emerging-markets exposure."
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