A 40-year industry veteran of numerous market cycles, Gord MacDougall is positioning the $1.9-billionAGF Canadian Large Cap Dividend Classic 
for the market turnaround.
"Underneath all the negativity in the media, there is some good news," says MacDougall, 63, vice-chairman of Vancouver-based Connor, Clark & Lunn Investment Management Ltd. (CC&L) "Price-earning ratios are down to very attractive levels. There are stories about dividends being cut, but in the last three months more companies have increased dividends than decreased them. Financial markets are healing -- though they're not healed."
A top-down investor, MacDougall relies on a capital markets checklist that looks at five areas: the economy, inflation, monetary policy, valuations and investor sentiment. There are about 70 factors that go into the checklist.
Today's score is plus-1. "Things are better, fundamentally," says MacDougall, noting that the score was minus-2 during last fall's turbulence. "Everyone gets emotionally involved in the market. This checklist takes the emotions out of the process and tells us what's really going on out there."
MacDougall says a lengthy period of consumer indebtedness ended last year with the market meltdown. The steep drop in the value of financial and real assets is forcing many people to spend less and save more to make up for past losses. "That's probably the most important new trend that has emerged after what we've just gone through," says MacDougall, who has been lead manager since the fund's inception in December 1985.
In this environment, CC&L is favouring financial service companies that will provide vehicles for baby boomers saving for retirement. "They have driven everything from day one. They will drive this trend, too," says MacDougall, noting that his six-person team has allocated about 30% of the fund to financial services, compared to 27% in the benchmark S&P/TSX Composite Index.
On the resources side, MacDougall doesn't expect another commodity boom but believes Canada is in "a sweet spot" and will benefit when global economic growth eventually resumes. "We don't want to be away from commodities, but don't want to be overweight the market either," says MacDougall, adding that there is 31% in energy compared to 28% in the index. "We see the long-term potential of the Chinas of the world. We never know when that demand will come back. In general, there is a shortage of commodities."
There's a third area of interest: infrastructure. With public spending being lavished on roads and bridges in many countries, MacDougall believes that engineering and construction firms like SNC Lavalin Group ( SNC/TSX) will be one of the key beneficiaries. "It will never be a 5% or 6% weighting in the fund because it's a mid-sized company. But it will show significant returns going forward," says MacDougall.
A Montreal native, MacDougall has spent his career either running financial services operations, or managing money. In 1968, after graduating from Sir George Williams University with a bachelor of commerce, he went to the University of Pittsburgh. He earned an MBA in 1969 and joined Sun Life Assurance Co., where he was employed in the fixed income department.
In 1972, MacDougall moved to Vancouver and spent a year at Dominion Securities as an institutional bond salesman. Then he moved to Yorkshire Trust where he eventually became company treasurer and chief financial officer.
As the company grew over the next decade, MacDougall was more involved in operations than investment management, which he would have preferred. In 1984, he seized an opportunity and joined CC&L, then a fledgling firm. CC&L has grown into one of the largest independent money managers in the country, overseeing $17 billion in assets. Most of that is held in institutional accounts.
MacDougall takes a strategic oversight role and leaves the stock picking to the team, which includes Alastair Dunn and John Novak. They screen stocks on the basis of profitability, financial strength and variability of revenues.
While there are about 50 stocks in AGF Canadian Large Cap Dividend, the team makes larger bets on high-conviction names. Single holdings are limited to 6%. Turnover has been moderate at 27.3% for the six months ended Sept. 30.
The Morningstar 3-star rated fund has a fairly consistent record and has had only four losing calendar years out of 23. On an annualized basis over the last three, five, 10, and 15 years, it has been either a first- or second-quartile performer in the Canadian Focused Equity category.
Looking ahead, MacDougall argues that it will take many years to make up for past excesses. Consequently, he also expects low rates of growth, low inflation and low levels of spending for perhaps a decade.
"That means returns from stocks will be around 6% to 7%. If inflation is 2%, you'll still be fine," says MacDougall. "But clearly people won't be spending like they did."
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