Donald Anderson makes it abundantly clear that the recently reopened $88-millionPH&N Vintage A is suitable only for aggressive investors. "We want to alert investors," says Anderson, a vice-president of Phillips, Hager & North Investment Management Ltd. in Vancouver. "It certainly can be volatile against the index. We're taking big sector and thematic bets, and at times we'll be wrong."
Anderson has co-managed the fund, along with Andrew MacDonald, since October 2006. His other responsibilities include lead management of the $148-millionPH&N Canadian Income A since October 2005, and supporting the entire PH&N team as an analyst specializing in transportation and materials. In managing PH&N Vintage, Anderson and MacDonald tap into the Canadian equity research team of seven other managers, plus a team of four in the U.S. equity research area. The fund's mandate is rooted in PH&N's investment discipline, which emphasizes growth at a reasonable price and high-quality companies. Anderson holds a concentrated portfolio of about 40 names, with the top 10 holdings making up about 50% of the fund. Reducing risk can sometimes takes the form of, "don't own too many, know what you own, and pay low multiples," says Anderson.
During Anderson's tenure, PH&N Vintage has a two-year return of [#150]2.7% to Sept. 30, compared with the median loss of 8.3% in the Canadian Focused Small/Mid Cap Equity category. Over the same period, PH&N Canadian Income A has a two-year return of [#150]3.5% compared with [#150]4.9% for the median Canadian Small/Mid Cap Equity fund.
While PH&N Vintage has a bias toward small- and mid-capitalization companies, it's not confined to this end of the market-cap spectrum. Nor is it restricted to Canadian companies. But the fund will always be a predominantly Canadian, says Anderson, holding a minimum of 50% of its assets in Canada. Also, the investment policy is to be fully invested.
Anderson says PH&N Vintage, which had approximately $200 million in assets when capped in 1993, previously had more of a small- and mid-capitalization focus, with lower trading volume. Given the larger size of the market today and greater liquidity, the firm felt "there was some runway here," and they could take in more assets and still follow through on their mandates. As well, effective Oct. 1, the management fee for the fund declined to 1.25%, down half a point.
To lessen the volatility of PH&N Vintage, Anderson maintains a 20% limit on the fund's exposure to microcaps, which PH&N defines as having $200 million or less in market capitalization.
As it has been over the past couple of years, agriculture remains one of the fund's investment themes. Anderson and his colleagues believe that the fundamentals for agriculture are more robust than for industrial commodities and energy.
Another favoured sector is forestry, though Anderson says the outlook has become less favourable in recent weeks. He has reduced his forestry exposure for now, while intending to add to it aggressively when there are clear signs of a recovery in the U.S. housing market.
Occasionally, Anderson and his teammates will use exchange-traded funds for hedging purposes. For example, because of their concerns that that crude oil prices were too high, they recently held in the PH&N Vintage portfolio an ETF whose value moves in the opposite direction of oil prices.
According to Anderson, the holding period for a company in PH&N Vintage is as long as possible. Using a strategy that differs somewhat from that employed in the rest of the PH&N fund line-up, "we will trade around core holdings at times, depending on opportunities or catalysts in the market," he says.
Anderson, 36, began his investment career in 1995 as a metals and fertilizer analyst at CIBC in Toronto. He moved to Newcrest Capital in 1997 and received the CFA designation in 1998. In 1999, he took a six-month sabbatical to travel overseas, mainly in Southeast Asia. Upon his return, he moved to British Columbia and joined Salman Partners as a sell-side analyst, specializing in materials and resources. He joined PH&N in May 2005.
Reflecting on managers who influence his approach, Anderson credits the retired Art Phillips and Ian Mottershead of PH&N for their investment philosophy, and portfolio managers Normand Lamarche and Frank Mersch of Front Street Capital, "who are spectacular with long-term track records."
Anderson is taking the volatile market environment in stride. "The opportunity set is growing weekly," he says. "However, the duration and depth of the downturn seems more uncertain today."
