When equity markets inevitably weaken once again, AEGON Capital Management Inc.'s Mark Jackson will be ready. An award-winning manager in the booming late 1990s, Jackson's hot hand in growth-stock investing went cold in the wake of the high-tech-led market plunge that began in 2000.
Learning from that experience, Jackson has made adjustments in the Transamerica and Ontario Teachers' funds that he manages. His bottom-up stock-picking strategy remains intact. He seeks companies with strong management, good balance sheets and growing revenue. But the structure of Jackson's portfolios has shifted to a more diversified and risk-averse posture. He's now holding between 45 and 55 companies, up sharply from 18 to 20 stocks previously. "We want to build a portfolio that will perform well over longer periods of time," says Jackson, "not just in strong markets."
Another difference is that Jackson has become a more active trader, with a view to culling his portfolio laggards sooner rather than later. He says his annual portfolio turnover is currently around 80% to 90%, up from 20% to 25% in the past. "It's probably better for us to preserve capital and move on," he says.
Jackson's refinements in his strategy have coincided with improved results for the $355.8-millionTransamerica GrowSafe Canadian Balanced, for which he has managed the equity portion since October 1998. A below-average performer over five years, the fund has returned 17.8% in the 12 months ended Jan. 31, ahead of the median fund's 10%.
Jackson is president, chief investment officer and newly appointed CEO of Toronto-based AEGON Capital Management. He oversees seven different balanced accounts, a small cap fund and the $103.2-millionOntario Teachers' Group (OTG) Diversified.
Of the firm's $7.4 billion in total assets under management, he has day-to-day responsibility as a portfolio manager for $1.2 billion.
The 41-year-old Jackson brings two decades of experience to his leadership role at AEGON. In 1984, after taking a job at Colonia Life between high school and university, he opted to stay in the work force rather than obtain a university degree.
Jackson never looked back. After a six-month stint in the mortgage department at Colonia, he moved into the firm's investment department in the money market area.
Taking advantage of opportunities in a smaller company, Jackson went from the money market to running the fixed income portfolios. He then moved into equities and small caps. In 1991, he received the CFA designation.
In 1994, Jackson joined Transamerica Life as assistant vice president, investments. As the firm's first investment person in Canada, he was responsible for building the investment team. In 2001, Jackson stayed on as Transamerica spun off its investment operation into Dutch-owned, AEGON Capital Management.
Jackson's top 10 equity holdings would characteristically be made up of blue chip, large cap names. He will hold no more than 10% of the assets of his investment mandates in any one name.
The recent largest holding in OTG Diversified is a 6.5% weighting in Toronto-Dominion Bank ( TD/TSX). Higher risk names are kept to around a 2% to 3% weighting. With Jackson currently looking for new names, the cash position has been running high at around 11%, but it would typically be around 5%.
Jackson and his team consider it essential to meet with company executives to assess their strategy. The team currently consists of two other portfolio managers, a trader and two recent additions on the analysts' side. Each manager meets with executives of more than 10 companies a month.
While Jackson's investment philosophy remains bottom-up driven, the macroeconomic perspective influences asset mix, particularly in the balanced accounts. Also, in the stock screening process, consideration is given to which industries are strong and growing.
"Our macro view is that the economy is going to weaken in North America this year but not go into a recession," says Jackson. "That being said, we still believe that in Asia, in China in particular, and in India, that the demand for materials and internal growth still paint a fairly good story."
For example, Falconbridge Ltd. ( FAL.LV/TSX) is Jackson's largest materials equity holding. He says that it is trading at a very cheap multiple of about a six or seven times forward price/earnings.
Taking profits in the energy sector, Jackson reduced the weighting from 25% of the portfolio last year to a current underweight position of 21%. Elsewhere, Telus Corp. ( T.NV/TSX) is the only telecommunications stock that Jackson owns, and he considers biotech stocks "rolling the dice too much."
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