While market cycles come and go, Gord MacDougall consistently maintains a methodology that blends a top-down perspective with buying stocks that have good fundamentals and are reasonably valued.
It's a process that has clearly worked for the $3-billionAGF Canadian Large Cap Dividend. In the course of more than 20 years, MacDougall, vice-president at Vancouver-based Connor, Clark & Lunn Financial Group (CC&L), has steered it through 17 positive years and endured only three losing ones. MacDougall, 60, has been lead manager of the four-star rated fund since its December 1985 inception. Working closely with Alastair Dunn, vice-president, he has generated performance in the first or second quartile over all periods.
Much of the credit goes to the consistency of approach. "Alastair and I have worked together for 27 years and developed this process long ago. As time has gone on, we have attracted more people," says MacDougall, adding that Martin Gerber, who works on the firm's quantitative side, and six analysts are part of the team. "They all follow the process that began way back when."
The team starts with a macroeconomic view, based on an in-house capital markets checklist, which looks at five areas: the economy, inflation, monetary policy, valuations and investor sentiment. The resulting score, which is updated weekly, sends either a positive or negative signal. A "plus-5" is a very strong bull indicator, while a "minus-5" is very bearish.
"What Alastair and I take out of that is, 'is it a friendly environment or a hostile one?' We have to invest money regardless of the score," says MacDougall. "If it's a bullish environment, we want to be fully invested and in certain types of companies. If it's bearish, we want to be more defensive, which leads us to other companies."
Stock picking is the next step. Initially, Gerber screens prospective companies for three main areas: profitability, financial strength and variability of revenues. This results in a list of companies that analysts will visit to determine what management is trying to do over the next three to five years.
"We get to know the company, build up some trust, and monitor them against the objectives they set," says MacDougall. "If the stock fits into our view of where the world is going, we will have a significant position."
A case in point is Shoppers Drug Mart Corp. ( SC/TSX). While the company interested CC&L because it benefits from an aging population, analysts concluded the firm was too leveraged for CC&L's liking.
When Shoppers' debt load got to an acceptable level about two years ago, "we purchased it because they did what they said they would. It met our financial criteria," says MacDougall, adding that the firm also instituted a dividend. Acquired at about $25, the stock has reached $45.
A Montreal native, MacDougall has spent his career either running financial services operations or managing money. In 1968, he graduated from Sir George Williams University with a bachelor of commerce. The following year, after he graduated with an MBA from the University of Pittsburgh, he joined Sun Life Assurance Co., where he worked in the fixed income department.
In 1972, he and his wife took a summer holiday in B.C., and liked it so much they ended up staying in Vancouver. After a year spent at Dominion Securities as an institutional bond salesman, MacDougall moved to Yorkshire Trust. It was there that he met Dunn and worked as company treasurer and chief financial officer.
As the company grew over the next 10 years, MacDougall was more involved with its operations than with investment management, which he would have preferred. Then an opportunity developed in 1984 when he was invited by Larry Lunn, who had started CC&L a couple of years earlier, to join the fledgling firm.
Since then CC&L has grown into one of the largest independent money management firms in the country, with more than $20 billion under management. Most of that is invested on behalf of institutional accounts such as pension funds. The AGF fund is the largest retail product and also the one with the longest record.
MacDougall likes to hold 30 to 40 names, and limits single holdings to 7% of fund assets. (Currently, about 17% of the fund is invested in foreign stocks selected by AGF International Advisors Ltd. in Dublin.)
Reducing holdings as they reach their target price, MacDougall will shift into names that may be cheaper or offer a more interesting story. His portfolio turnover tends to be low to moderate.
Currently, the firm's top-down checklist is sending a "minus-2" score, which is regarded not as a bearish signal but a cautionary one. "Intuitively, that should not be surprising," says MacDougall. "The last three years have been the best since 1978-1980. Things may be fully priced."
