Gerald (Gerry) Coleman, Morningstar Canada's 2008 Manager of the Year, is in a buying mood. The founder and head of the Harbour team of managers at CI Investments Inc. has a long history of allowing cash to pile up when he can't find any investment opportunities to his liking. But increasingly the price is right for Coleman, as indicated by his dwindling cash reserves.
down to a current 12%, from about 23% at the beginning of September. Meanwhile,CI Harbour Growth & Income
currently holds around 27% in cash, down from roughly 37% a couple of months ago.
Coleman says he and his team-mates are not making tactical calls on the funds' cash weightings. He says that by selling just one big holding, like a 5% position, he'd have 17% cash tomorrow instead of 12% in CI Harbour. But he wouldn't feel compelled to do anything.
A great admirer of the famed value investor Warren Buffett, but "stingier in terms of valuations," Coleman considers patience the hallmark of his investment mandates. "We buy high-quality, best-of-breed companies that tend to stand up better in lousy markets," he says. "Secondly, we're very valuation-oriented and, thirdly, we tend to lug higher cash positions, which also limits the downside."
Potash Corp. of Saskatchewan Inc. (
POT/TSX), a leading fertilizer company, is a prime example of how Coleman's investment discipline has worked. His acquisition cost was $18.50 a share when Potash went public in 1989, and he has subsequently realized huge profits.
"We liquidated most of the position at 200 bucks," says Coleman, "so it was a 10-bagger -- it took a decade to get 10 bags out of it." Recently, the stock has dropped to $86 and Coleman has started to buy it back.
Coleman is fond of saying that when he buys something, he likes to have two tailwinds blowing. The first is a growth tailwind to propel the stock higher. The second is a valuation tailwind. So if Coleman were buying a stock today that was selling at 14 times earnings, he probably thinks it deserves to sell at 18 times earnings, he adds.
The Harbour funds are well diversified by industry sector. Coleman thinks there are some extraordinary values in the oil and gas sector over the long-term horizon. He also sees value in mines and minerals, along with some great values in the technology sector.
In terms of the consumer area, he's "not crazy about consumer durables," the big-ticket items like cars and major household appliances. But he's a fan of companies like Tim Hortons Inc. (
THI/TSX), "a terrific company," and Diageo PLC (
DEO/NYSE), the world's largest spirits company.
Coleman welcomed the change in investment policy to allow up to 50% foreign content in Harbour fund, up from 30% in 2005 before the federal foreign-property rule was abolished. Most of the eight to 10 new ideas that the Harbour team is currently researching are foreign companies, he says.
A deliberate strategy in the Growth & Income mandate, whose equity holdings are similar to CI Harbour, is the low 6% position in bond holdings. Coleman thinks inflation is going to rise in the coming years and that the bond market offers investors a very poor risk-reward ratio. Coleman is also averse to currency risk. Starting in April 2007, he began fully hedging his funds' foreign-currency exposure.
Coleman's conservative approach has its roots in the trust industry. His first investment experience was in 1965, right after high school at Montreal Trust, where he remained for 13 years. He joined the securities department in Toronto and worked his way up to become a trader. By age 30, he became head of the investment department.
Coleman joined the former United Financial Management Ltd. in 1978 as a fund manager. He later teamed up with a younger colleague, Jerry Javasky, and in 1992 they moved together to Mackenzie Financial Corp. as the founding managers of the Ivy funds.
Then in 1997, Coleman moved on his own to join CI to establish the Harbour funds, which currently include Canadian focused equity, domestic and global balanced, and global equity mandates.
The two largest funds are the $6.6-billion CI Harbour Growth & Income, a 4-star rated Canadian Neutral Balanced fund, and the $4.5-billion CI Harbour, which has a 5-star Morningstar Rating and is a Morningstar Fund Analyst Pick in the Canadian Focused Equity category.
As he positions his funds for a market upswing, Coleman, 64, will continue to work most days from his Toronto-area home in Oakville, away from the noise and distractions of Bay Street.
"I think when the market turns this time, it's going to be very abrupt," says Coleman. "And the added thing that [investors] are going to have to struggle with is the moves are going to be huge, it's just going to be disbelief."
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