A voracious reader, Mark Schmehl is constantly searching for new investment ideas. He finds them buried in the 400 magazines, newspapers and periodicals that he subscribes to. Indeed, his desk at Fidelity Investments in Boston is piled with publications such as Women's Wear Daily, Aviation Week and GPS World.
"One thing that I'm good at is picking out interesting tid-bits that are important, and then try to find an investable way to play them," says Schmehl, 36, portfolio manager of the $77.6-millionFidelity Special Situations Series A. "[Sometimes] it's hard to pin down why the information may be important. But that's the process," says Schmehl, a growth manager who also pores through thick volumes of research produced by Fidelity analysts, and attends company briefings.
Early last year, Schmehl noticed that bio-fuels were gaining in popularity, and the price of corn and fertilizers was rising quickly. Backed by the 15 analysts on Team Canada (which manage a host of Canadian equity and fixed income funds), he focused on the agriculture sector to the extent that it accounts for 30% of the fund.
One of the largest holdings is SLC Agricola SA. The Brazilian company farms cotton, beans and corn on about 300,000 acres. "It has a very competent management team and the stock is still incredibly cheap relative to its peers," says Schmehl, noting that the firm acquires land at about US$2,500 an acre compared with US$8,900 in Iowa.
Although the stock price has more than doubled in the past year, Schmehl sees further upside. "It's growing its land holdings at about 30% a year. Even if you ignore the commodities, that's a bonus," he says. "It's a neat story that nobody seems to know that well."
That holding is one of the contributors to the fund's impressive start. Launched in April 2007, the fund returned a robust 37% for the 12 months ended April 30, compared with a 9.9% loss for the median fund in the Canadian Small/Mid Cap Equity category.
The fund is a niche product, says Schmehl, because of its eclectic mix of assets that cover the market capitalization spectrum. Yet it is similar to other Fidelity funds sold in the UK and U.S. "They [Fidelity] felt this was a good fit for someone like me."
A native of Sarnia, Ont., Schmehl grew up in Waterloo and graduated from Wilfrid Laurier University in 1994 with a bachelor of business administration. He landed a job as a manager/search analyst at pension consultants SEI Investments in Toronto. He was responsible for interviewing money managers to determine which ones were suitable for clients.
While the job gave him insights into different investment styles, Schmehl discovered that one's style is particular to each person. "I'm not a value investor -- every time I buy a value stock, it blows up. You teach yourself what kind of investor you are."
In 1998, Schmehl went to Columbia University and graduated two years later with an MBA. In the summer of 1999, he landed an internship at Fidelity and analyzed utilities.
In 2000, Fidelity hired him as an analyst. He began covering materials stocks and later moved to health care, biotechnology, industrials, insurance companies and real estate. He also ran the U.S.-domiciled Fidelity Select Industrial Materials fund between 2000 and 2003, and worked on the team that managesFidelity Canadian Disciplined Equity.
In 2007, Schmehl expressed an interest in starting a small fund that would give him the freedom to pick stocks that were little known. "It's like a hedge fund, except I'm not allowed to go short, for instance."
Unlike many Fidelity funds, it is more concentrated and single holdings will go as high as 6.5%. Portfolio turnover has been high, at 175% for the six months ended Dec. 31. Schmehl expects the turnover will decline as the fund grows.
In the meantime, he admits that market conditions are disconcerting and he is totally avoiding some sectors. "I do not own U.S. financials; it's a train wreck," he says. Nor does he like insurance companies. "Would I rather own Manulife Financial or SLC Agricola? There's no question which one I'd prefer."
Besides the heavy agriculture weighting, Schmehl has about 15% in energy stocks and favours names such as Canadian Oil Sands Trust ( COS.UN/TSX) and First Uranium Corp. ( FIU/TSX).
However, about half of the fund is devoted to companies that are driven by themes. Owens-Illinois Inc. ( OI/NYSE) came up on the radar when he read that consumers were returning to glass bottles because of concerns about the environment and the safety of plastic containers.
The stock had more than doubled in 2007, when Schmehl bought it last January at around US$50. "They're getting some pricing and demand is better than expected. That's how it happened," he says, noting that the stock has subsequently risen about 12%.
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