In the search for positive absolute returns, Paul Harris challenges many widely held beliefs about stock selection. The co-manager ofFrontierAlt All Terrain Canada andFrontierAlt All Terrain World is skeptical, for example, about the high importance that's almost always accorded to company management in assessing the merits of a potential investment.
"In a large company, management has a very minuscule role," says Harris. "I think it's at a mid-cap level or a small-cap level that management is really important and can have a bigger influence." While talking to management -- which Harris considers a "checkmark" in the investment process -- may or may not reveal where a company is headed, a valuation measure based on discounted cash flow provides a good indicator of a stock's true value.
"What's the market saying about how fast a company is growing, based on its stock price and earnings growth? If the implied growth rate is really high, that means everything is in the price of the stock already," he says.
Harris also believes current events and industry developments can be more telling than statistics when it comes to finding investment-worthy companies. "I look for my ideas in the papers and other things I read. We talk to people we know. We don't sit there and screen, screen, screen," he says.
After graduating from the University of Toronto with a bachelor of arts degree in 1986, Harris worked in foreign exchange. He joined the TD Asset Management (TDAM) fixed-income department in 1992, at about the time when the company began running retail mutual funds. That's where he first became acquainted with his current partners at Avenue Investment Management Inc., Paul Gardner and Bill Harris (no relation).
Harris's experience at TDAM set the foundation for his current work in more than one way. "I was there when it was only 10 people, so I got to do a lot of different things," says Harris. "It also allowed me to learn about fixed income from one of the best fixed- income managers in the world," a reference to the award-winning Satish Rai.
In 1994, Harris earned his CFA designation, and in 1995 he moved from fixed income to work as an equity analyst and senior portfolio manager, with responsibility for what are nowTD Dividend Growth 
andTD Canadian Small Cap, as well as the TD Bank pension fund.
In 2000, he joined Fiduciary Trust Company International (now part of the Franklin Templeton group) in New York, where he focused on managing global and international equities for high-net-worth individuals and institutional clients.
Following his return to Toronto in 2002, Harris formed Avenue Investment Management Inc. with Gardner, and the two were later joined by Bill Harris. In May 2006, the company was appointed manager of FrontierAlt All Terrain Canada and of FrontierAlt All Terrain World.
The team's approach to managing the funds mirrors its private client business, according to Harris. That includes taking concentrated bets -- holdings generally number between 30 and 40 for FrontierAlt All Terrain Canada Fund and between 40 and 50 for FrontierAlt All Terrain World -- and low portfolio turnover.
Approximately 70% of the funds' assets are held in large-cap dividend-paying stocks, while small- and mid-cap stocks offer a "push" in returns. "That's one of the advantages of running less money," says Harris, who believes that many mainstream equity funds suffer from being too large to invest in anything but the largest companies.
A focus on absolute returns also means the funds may differ significantly from their benchmarks. "On the global fund, our mentality tends to be about absolute performance," says Harris. "We're not thinking about relative performance and we don't think about the index very much at all."
Meanwhile, in addition to a focus on risk management -- or what Harris terms "getting paid back [our] money" -- Harris's background in fixed income gives rise to another unconventional belief.
"The biggest fallacy in the investment world, as far as I'm concerned, is that diversification works," says Harris, and he offers the domino-like effect of China's dramatic stock market decline in February as proof that it doesn't. "All the markets fell; some a little less than others. But guess what? Bonds rallied two and a half points."
Harris believes a well-chosen bond is a better way to achieve diversification in a stock portfolio than investing in less-correlated regional equity markets such as Japan, China and India, which tend to be very volatile. "We use debt as a cash proxy at some points and times, or we use it to offset risk in a portfolio," he says.
andTD Canadian Small Cap, as well as the TD Bank pension fund.
In 2000, he joined Fiduciary Trust Company International (now part of the Franklin Templeton group) in New York, where he focused on managing global and international equities for high-net-worth individuals and institutional clients.
Following his return to Toronto in 2002, Harris formed Avenue Investment Management Inc. with Gardner, and the two were later joined by Bill Harris. In May 2006, the company was appointed manager of FrontierAlt All Terrain Canada and of FrontierAlt All Terrain World.
The team's approach to managing the funds mirrors its private client business, according to Harris. That includes taking concentrated bets -- holdings generally number between 30 and 40 for FrontierAlt All Terrain Canada Fund and between 40 and 50 for FrontierAlt All Terrain World -- and low portfolio turnover.
Approximately 70% of the funds' assets are held in large-cap dividend-paying stocks, while small- and mid-cap stocks offer a "push" in returns. "That's one of the advantages of running less money," says Harris, who believes that many mainstream equity funds suffer from being too large to invest in anything but the largest companies.
A focus on absolute returns also means the funds may differ significantly from their benchmarks. "On the global fund, our mentality tends to be about absolute performance," says Harris. "We're not thinking about relative performance and we don't think about the index very much at all."
Meanwhile, in addition to a focus on risk management -- or what Harris terms "getting paid back [our] money" -- Harris's background in fixed income gives rise to another unconventional belief.
"The biggest fallacy in the investment world, as far as I'm concerned, is that diversification works," says Harris, and he offers the domino-like effect of China's dramatic stock market decline in February as proof that it doesn't. "All the markets fell; some a little less than others. But guess what? Bonds rallied two and a half points."
Harris believes a well-chosen bond is a better way to achieve diversification in a stock portfolio than investing in less-correlated regional equity markets such as Japan, China and India, which tend to be very volatile. "We use debt as a cash proxy at some points and times, or we use it to offset risk in a portfolio," he says.:quality(80)/cloudfront-us-east-1.images.arcpublishing.com/morningstar/Q3KIND5VXRCNHHH6JQHCCYBSSA.png)
