Ted Macklin, the lead manager of the $127-millionBMO Guardian Canadian Large Cap Equity, is maintaining a cautious strategy.
"In a nutshell, we have been defensive, but clearly not defensive enough in hindsight," says Macklin, managing director at Toronto-based Guardian Capital LP. "I would be happier if we hadn't experienced the size of the negative return last year, but there really was nowhere to hide. I don't hide in cash."
Macklin has direct lead responsibilities for approximately $850 million in total assets under management and co-manages roughly $3 billion in Canadian pension and retail equities. He has led the Canadian large-cap mandate since September 2000. The institutional and retail mandates follow the same philosophy.
"These are core-oriented, conservative mandates," says Macklin. "Some names may have less of a growth tilt in the overall portfolio, but the companies are going to have in common strong balance sheets."
The highly qualitative, "kick-the-tires process" finds the team of eight equity professionals visiting or teleconferencing 150 to 200 companies, including customers and suppliers of their current or potential picks, on a quarterly basis.
Among Macklin's holdings is Shoppers Drug Mart Corp. ( SC/TSX), which he says "really hits on all of the buttons of a stable growth company." Macklin's criteria include quality balance sheets, strong cash flow, dividend increases and proven management teams with the ability to handle succession properly.
Finning International Inc. ( FTT/TSX) is an infrastructure play that Macklin's fund holds. He says the Caterpillar heavy-equipment company meets all of his stock-picking criteria, and the business is benefiting from the growth and interest in the oil sands area of Northern Alberta and the upcoming 2010 Winter Olympics in Vancouver. "Finning is out of favour," says Macklin, "but it's an excellent company and an example of those long-term metrics that we look for."
A buy-and-hold investor, Macklin says his portfolio turnover is historically about 20% a year. His sell discipline is based on deterioration of fundamentals or anything else that negatively affects the quality of the company, or the possibility of finding better growth prospects elsewhere.
Macklin's average number of stock holdings in BMO Guardian Canadian Large Cap is typically around 35. But the fund currently holds more than 38 names, reflecting a more defensive strategy with regard to stock-specific risk.
About 80% of the holdings are components of the S&P/TSX 60 Index, and the remaining 20% are mid-capitalization companies. "You'll never find small-cap stocks in this mandate," says Macklin, "but we do want to have some opportunity in the mid-cap space to identify the leaders of tomorrow."
Diversification is considered essential, so there are no big concentrated positions. The weightings of individual stocks rarely exceed 6% of the overall portfolio. Another risk constraint is that an industry sector is never allowed to represent more than 25% of the mandate. That investment discipline was a real test last year, says Macklin, because they were very early in taking profits.
Macklin says the fund tends to typically lag in quarters that are characterized by speculative, frothy activity. "Going back to the first half of last year with the oil and gas frothiness," says Macklin, "that's typically what happens."
Macklin says he and his colleagues tend to add value during adverse market conditions. "It happened last year when the market really turned down, that's where we added that relative value," he says.
Although BMO Guardian Canadian Large Cap Equity suffered a 29.3% loss in calendar 2008, it finished ahead of the median 33.3% loss for Canadian Equity funds. Over 10 years to Feb. 28, mostly under Macklin's tenure, the Morningstar 5-star rated fund has returned an annualized 5.4%, compared with the median of 4.2%.
Macklin, 48, brings more than 25 years of experience to his current role. Born into a family with a long history of entrepreneurialism and successful professional investing, he gravitated naturally into the industry. After graduating from the University of Toronto with a bachelor of commerce in 1983, he began working as an analyst for Confederation Life Insurance Co.
In 1986, Macklin joined Elliott & Page Ltd. as an investment analyst, receiving the CFA designation in 1988. He had been promoted to portfolio manager by the time he left in 1997. He then moved to Bolton Tremblay Inc., where he managed Canadian equity portfolios and was a vice-president and director. In the fall of 2000, he joined Guardian Capital Inc. as managing director, Canadian equities.
Looking ahead, "it's going to be a very dynamic process in the next six months," says Macklin, "but it's a question of timing. I anticipate being able to position the portfolio toward increased economic stimulus -- in a very gradual and incremental basis -- and I anticipate it happening by mid-year."
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