While markets continue to be turbulent, Wade Burton says it's a great time to load up on cheap stocks.
"The real juicy, deep-discount, 50-cents-on the dollar stuff has not existed for a very long time," says Burton, 36, manager of the $1.86-billionMackenzie Cundill Canadian Security Series C
and vice-president of Vancouver-based Mackenzie Cundill Investment Management Ltd. "We knew it would take something like the credit crisis to shake out these opportunities."
Focusing on a select group of companies that are trading at significant discounts takes a very patient investor. And, as Burton notes, unitholders understand that the Cundill fund is not in sync with markets. "Armageddon to us, is Nirvana," cracks Burton.
Currently, the fund has been a laggard, as it lost 20.3% in the 12 months ended June 30, compared with the 4.3% loss for the median fund in the Canadian Focused Equity category. Over one-, two-, three- and five-year periods, the fund was in the fourth quartile.
Burton is staying the course. "We look at what we own every quarter. And, generally speaking, the earnings capacity, or other assets, have not been impaired," he says. "In most cases, it's going up."
Relying on analysis of financial statements to identify under-priced assets, Burton tries to own stocks with the least amount of risk. "The discount to net asset value is as low as it's ever been since I joined -- 40%. There is a greater margin of safety today, compared to two years ago, when it was 15%."
Loblaw Cos. Ltd. ( L/TSX), acquired about a year ago, is a representative holding. "People said it lost its competitive advantage, that there is over-capacity in the grocery business and there's a big question around management," recalls Burton, noting that he has added to the position even as the stock dropped from $52 to $31. "All of this was true."
Yet he questions whether these factors have permanently damaged Loblaw's earnings ability. In examining the firm's real estate assets and grocery operations, he believes there is a 40% discount to net asset value. "We know we have a margin of safety, and the business is worth a lot more than what it is selling for," says Burton. "It's worth $50 a share -- and then some."
Burton believes the company will resolve the pricing and distribution issues that have plagued it, and hence unlock the discount. "It will start to be a growth stock again," he says. "That will get us closer to what the company is worth."
An Edmonton native, Burton was always interested in investing, and entered the industry via a circuitous route. After graduating in 1993 from the University of Western Ontario, with a bachelor of arts and a political science major, he enrolled in an accountancy program at McGill University. "I didn't want to be an accountant, but needed a finance background," he says, adding that he decided to complete the CFA program.
In 1995, he joined investment dealer Richardson Greenshields in Toronto and worked for a year on the distribution side. Then he and his wife spent a year travelling. On their return, and looking for some hands-on financial industry experience, Burton joined Canadian Western Bank as a commercial lender.
Two years later, having worked in Winnipeg, Regina and Calgary, Burton got a job in the Turks and Caicos Islands, where he spent 18 months as a portfolio manager for an offshore broker.
In search of a new challenge, Burton contacted Peter Cundill, head of Cundill Investment Research Ltd. Burton offered his services free of charge, as a way to get his foot in the door, and Cundill took him up on the offer.
After a four-month apprenticeship, and earning a small stipend to cover his expenses, Burton was hired in March 2000. "You never stop learning. That's one of the best things about our place," he observes. "We constantly learn, because we are as honest as we can be about mistakes that we make."
As part of a nine-member team, Burton works work closely with Peter Cundill and managers such as Andrew Massie, who heads the $6.5-billionMackenzie Cundill Value Series C. Since 2004, Burton has been lead manager of the Canadian equity fund and the $1.5-billionMackenzie Cundill Canadian Balanced Series C.
Burton limits individual holdings to about 8% of fund assets. His portfolio turnover has been modest, at 29.6% in 2007, and 21.6% in 2006.
Although the fund has a one-star rating, Burton is confident it will rebound. "We own sensible businesses that make good money. They are not going away, and we paid terrific prices for them."
Consider Fairfax Financial Holdings Ltd. ( FFH/TSX), the fund's largest position. "This is a really cheap stock," says Burton, adding that the firm has put its problems behind it. Because of its relatively strong balance sheet, he believes the stock should trade from one and a quarter to one and a half times book value, or about $400. The current price is $270, about equal to book value.
. Since 2004, Burton has been lead manager of the Canadian equity fund and the $1.5-billionMackenzie Cundill Canadian Balanced Series C.
Burton limits individual holdings to about 8% of fund assets. His portfolio turnover has been modest, at 29.6% in 2007, and 21.6% in 2006.
Although the fund has a one-star rating, Burton is confident it will rebound. "We own sensible businesses that make good money. They are not going away, and we paid terrific prices for them."
Consider Fairfax Financial Holdings Ltd. ( FFH/TSX), the fund's largest position. "This is a really cheap stock," says Burton, adding that the firm has put its problems behind it. Because of its relatively strong balance sheet, he believes the stock should trade from one and a quarter to one and a half times book value, or about $400. The current price is $270, about equal to book value.
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