Since joining AGF Funds Inc. last year, Bob Lyon has gradually pared the 150-plus names he inherited in his resource-based mandates to reach his preferred 80-stock range. His assets under management includeAGF Global Resources Class, along with the more narrowly focusedAGF Canadian Resources andAGF Precious Metals.
At the same time, he's kept a large portion of the fund in small- and mid-cap names. He estimates that the portfolio of AGF Global Resources consists of about 60% to 70% in large-cap companies and about 30% to 40% in the small- to mid-caps.
With the steep drop in the market last fall, Lyon felt it was the wrong time to sell smaller-cap stocks that were trading at "fire-sale" prices. That appears to have been the right call because these stocks have rebounded strongly since last September.
Lyon and his six team-mates started putting money back to work around last November, reducing their cash reserves. He says they were suddenly finding what they considered "phenomenal" long-term values in the marketplace again.
Besides, Lyon's investment philosophy is to maintain fairly tight cash positions. He says this helps enforce his discipline of always asking himself if he is buying the best stocks for his portfolios.
Lyon pursues a growth-at-a-reasonable-price discipline. Though he's always looking to fine-tune his holdings, he says "100% would generally be at the higher end" in terms of his portfolio turnover.
Lyon also believes that his experience with resources cycles is helpful in managing the sub-sector exposures of the diversified resources funds. Since last year, he has cut back on his exposure to gold miners, and increased his weightings in energy and base metals producers.
Along with his goal of "constant high-grading" of his holdings, Lyon sets targets of a double-digit return for some of his picks. He says a 20% return over a time frame of 18 to 20 months helps to compensate for what has historically been a more cyclical, volatile sector. "The cyclicality is not going away," says Lyon, "but the general direction is now actually up. And I think a lot of investors either don't believe it or they don't understand it."
Lyon looks for what he describes as companies with good long-term track records, good management and sound balance sheets. Part of his selection process consists of identifying opportunities that wouldn't necessarily be uncovered by fundamental analysis.
Consider, for example, his purchase of Canadian Natural Resources Ltd. ( CNQ/TSX) a few months ago. Lyon says the oil and gas company had gone through a significant period of underperformance versus its peers. The stock price had been depressed by worries about the start-up of the new oil-sands project.
Through additional research, Lyon concluded that the fears had been overblown, since he discovered from regulatory filings that the company had built a power plant whose sole purpose would be to serve the oil-sands operation.
A graduate of Carleton University, Lyon, 43, received a bachelor of commerce degree in 1989. In November of that year, he joined Nesbitt Thomson in Toronto as an accounting clerk, working his way up to the finance department.
In 1993, Lyon joined ScotiaMcLeod Inc. as a research analyst and received the CFA designation in 1994. In 1995, he moved to Lévesque Beaubien Geoffrion Inc. as a research analyst. In 1997, for just under a year, he worked for I.A. Michael Investment Counsel Ltd., the value-style Toronto firm headed by Irwin Michael.
Before joining TD Newcrest in January 2006, Lyon managed resources funds for the Signature Advisors division of CI Investments Inc. He had previously managed a resources fund for the former BPI family of funds, becoming a CI employee when CI acquired BPI in October 1999. Lyon joined AGF Funds in April 2008 and is now a senior vice-president and portfolio manager, working closely with veteran manager Bob Farquharson.
For Lyon, the case for investing in resources remains well grounded. Among the main drivers of commodity-based industries are the growing economies of China and India, he says.
"To me that story should be engrained in every investor's mind now, not as some fantasy whim of commodity investors," Lyon says. "This is real, it's happening before our eyes. It's a snowball effect that just keeps rolling and has several years to play out."
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