The stock market is highly volatile and anxious investors are rushing for the exits, but it's also providing lots of opportunities for stock pickers, says Paul Hancock, manager of the $2.8-billionInvestors Canadian Equity.
"We're in a crisis and we're not going to come out of this in a month or two," says Hancock, 43, a portfolio manager at Winnipeg-based I.G. Investment Management Ltd. "But we are working through it and don't expect a deep recession in the U.S."
While it is hard to determine when the market will bottom, "it is getting close to the average decline that we've seen in the past," observes Hancock. "Some 20% of the stocks on the S&P 500 Index are down over 25% from their highs."
But Hancock argues it's important to take a long-term view and stay invested. "On a company-by-company basis, there are some good ones out there, with strong track records of earnings," he notes. "We are finding opportunities in the market."
A bottom-up investor, Hancock favours large-cap names in a universe that numbers about 140 Canadian stocks. He uses a quantitative screen to rank stocks on a relative basis and then zeroes in on the top 20%. "It's a blended fund, so we're not looking only at growth or value. We have the ability to tilt the fund in either direction," he says.
The fund holds about 35 to 40 names, with most positions making up 2% to 3% of assets. "If we like a name, it can go upwards of 7%," says Hancock, noting that Royal Bank of Canada (
RY/TSX) is the top holding at 6.1%.
One relatively new holding is Gildan Activewear Inc. (
GIL/TSX). Although the manufacturer of T-shirts and underwear was under pressure because of concerns about its Latin American production facilities, the stock still looked attractive. It has recently slipped below Hancock's acquisition price of under $40 last fall, yet he is confident it will rebound.
"Gildan has a very good track record in terms of earnings growth and return on equity," says Hancock. "Longer-term, we believe its growth rate is intact. It has a very large market opportunity in its relationship with Wal-Mart Stores Inc."
A University of Western Ontario graduate, where he earned a BA in administration and commercial studies in 1987, Hancock has worked at Investors Group since 1990. Before joining the firm he attended the University of Windsor, where he received a bachelor of commerce and an MBA.
Hancock began working as a fixed-income analyst, and within a few years managed several funds, including IG's corporate bond fund. "It was a good stepping stone to the equity side since the bond fund held corporate debt of large-cap names," he says. "It wasn't a big learning curve."
In January 2001, Hancock took over Investors Canadian Equity. Under his tenure, it has ranked in the second quartile on a one-, three- and five-year basis for the periods ended Feb. 29.
Although the fund was recently moved by the Canadian Investment Funds Standards Committee into the Canadian Dividend and Income Equity category, Hancock says he does not buy stocks for their yields. Still, his weighting in dividend-heavy financial services stocks is slightly heavier than the sector's 27% weighting in the S&P/TSX Composite Index.
The most significant shift in the fund, however, has been an increase in its U.S. exposure to 15%, from 6% in December 2006. "We're gaining access to sectors or names that are not available in Canada or offer better relative value," Hancock says.
One new holding is Arch Coal Inc. (
ACI/NYSE). The firm is one of the top three coal producers in the U.S. "Coal is not going away, given the U.S.'s power needs and the cost of alternatives, such as gas, which are going up."
Hancock favours a buy-and-hold approach. His portfolio turnover was 21% for the year ended Sept. 30, 2007, and an even lower 13.8% for the previous year.
Since January 2002, Hancock has also been co-manager of the $832.2-millionInvestors North American. While he selects the Canadian names, Mark Chaput, who is based in Montreal, chooses U.S. stocks from a variety of sectors such as consumer discretionary and technology. The U.S. accounts for slightly more than half of the fund.
Hancock expects that the Canadian market will be higher in the next eight to 12 months. And given current dividend yields that range from 4% to 5.5%, equities remain more appealing than bonds, he says.
The other positive is Canada's exposure to the commodity story. "There will be some volatility as the U.S. economy slows and demand weakens for some materials," says Hancock. "Yet from a global perspective, India and China will fuel a lot of the growth. That's very positive for our markets. We don't know when we'll see the bottom. But buying today is more attractive than a few months ago."
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