Rohit Sehgal believes that the global economic cycle is likely to remain robust for an extended period, thanks largely to emerging economies in Asia.
"These things don't happen too often -- especially when you have three billion people who were shut out of the market economy and are now suddenly part of it," says Sehgal, chief investment strategist at Toronto-based Dynamic Mutual Funds Ltd., and lead manager of the $1.2-billionDynamic Power Canadian Growth. "It's not a one- or two-year phenomenon. It will go on for a long time." A seasoned growth investor, Sehgal draws parallels with Japan, which became a global industrial giant in the 1960s and '70s. "China and India are very different because of their huge size, of course. But they will also make an impact."
In Sehgal's view, the world is becoming "flatter" in the sense that capital is free to cross borders and interest rates are low in many countries. Combined with a low inflation environment, "this flattening effect, and what is happening in Asia, is having a profound impact," he says.
Sehgal's optimism is grounded in many years of experience. A University of Delhi graduate, his career began in 1968, just after he emigrated from India and joined Toronto brokerage firm Moss Lawson as an equity researcher.
In 1970, he moved to London Life Insurance Co. in London, Ont., and for 11 years served as an analyst in the fixed income and private placement areas. In 1981, Sehgal became portfolio manager of the then $50-millionLondon Life Canadian Equity.
By the time he left in 1997 he had established a reputation as an above-average manager and the fund had grown to $1.8 billion.
Sehgal, 59, admits that his style evolved naturally. "For stock prices to rise, you have to have companies that show growth. If they're not growing, it's very tough to make money. To me, it's a natural."
Sehgal joined Goodman & Co., Investment Counsel Ltd., which manages the Dynamic mutual funds, in 1998. In July of that year, he became co-manager of Dynamic Power Canadian andDynamic Power Balanced.
In January 1999, Sehgal took over the portfolio of Dynamic Power Canadian Growth, which absorbed Dynamic Power Canadian in November 2000.
His other managerial duties include the $173.5-millionDynamic Power Small Cap, which he has co-managed since October 2002. In July 2003, he became lead manager of the $188.5-millionDynamic Power Hedge Class F. Last August, Sehgal also assumed the $4.6-millionDynamic Power Emerging Markets.
Common to all the funds is a process that blends top-down views and bottom-up fundamental analysis. Sehgal studies trends in interest rates, GDP growth, inflation and corporate earnings. He also follows changes in currency patterns, demographic trends and economic shifts.
"We pay a lot of attention to what is happening on a global basis," says Sehgal. "You get very good clues by studying the macro picture." Once he determines which sectors will do well, he focuses on a handful of stocks that will deliver the best earnings growth, and by extension, the best returns.
Sehgal looks for Canadian companies with strong returns on equity, strong earnings momentum and positive earnings revisions and surprises. Individual positions are limited to 5%. Sehgal also keeps an eye on valuations and takes profits when stocks approach their price targets.
The three-star rated flagship equity fund has a clear bias in favour of resource stocks, with a 40% weighting in energy names such as Trican Well Service Ltd. ( TCW/TSX) and Western Oil Sands Inc. ( WTO/TSX). There is also 30% in materials stocks such as base metal producer Teck Cominco Ltd. ( TEK.SV.B/TSX).
An active manager, Sehgal admits his portfolio turnover is high. In 2003, Dynamic Power Canadian Equity had turnover of 180.4%. It was an even steeper 243.9% in 2002.
Although the fund has benefited from the energy sector's powerful outperformance, Sehgal does not expect that to continue on a go-forward basis. "The commodities will still do well, but the divergence won't be as great," he says.
As a consequence, he's been taking profits and shifting some money into the less favoured health care sector. Recently, he acquired generic drug-maker Biovail Corp. ( BVF/TSX).
Although the bull market is now into its fourth year, Sehgal argues that stocks should continue to do well because macroeconomic conditions remain positive. He notes that the U.S. economic engine is still generating jobs, and Europe and Japan are also improving. "More important, China and India are accelerating. China is growing at 9.5%, and India 8%. So you can't be too bearish."
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