Former competitive ballroom dancer Frederick (Fred) Sturm now has a different type of audience applauding his deft moves. The executive vice-president and chief investment strategist at Toronto-based Mackenzie Financial Corp. has smartly executed a turnaround of Mackenzie's oldest mutual fund, while continuing to maintain a firm grip on its natural resources and precious metals offerings.
"We try to bring a balanced, holistic approach to investing," says Sturm, "rather than an always fully invested or highest torque approach to the resources sector. That allows us to incorporate elements of growth and value disciplines, long-term themes and market-cycle analysis."| Sturm, along with teammates Benoît Gervais and his most recent addition, Shechar Dworski, is responsible for approximately $4 billion in mutual fund and other assets. That's roughly double the year-earlier total, despite some redemptions fromMackenzie Universal Precious Metals after a pullback in the gold sector. |
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Since taking over the $432.8-millionMackenzie Growth in January 2002, Sturm has succeeded in turning around the previously erratic performer. The formerly named Industrial Growth, launched in 1967, remains a fourth-quartile fund over 10 years and 15 years in the Canadian Equity mutual fund category. But under Sturm's tenure, the fund has a top-quartile three-year return to July 31 of 17.1% compared with 13.2% for the median fund.
The $725.4-millionMackenzie Universal Canadian Resource, which Sturm has managed since 1986, has been a laggard over the past 12 months because of its relatively low weighting in the booming energy sector, where Sturm has been taking profits. But over the past five and 10 years, the Morningstar four-star rated fund has performed in the top quartile.
As for the $186.8-million Mackenzie Universal Precious Metals, which Sturm has managed since its inception in January 1994, there's been a similar pattern of lagging recently while outperforming over five and 10-year periods.
"We are suggesting that people moderate expectations in the next 12-month window," says Sturm. "The last bear market -- which was a Papa Bear market -- taught us to keep on selling because it's going to keep getting worse," he adds. "But if stocks start to decline again, we think that will be the wrong thing to do."
In crafting the Mackenzie Growth portfolio, Sturm's team first identifies key themes, such as health care and demographics and the China/India demand for resources.
While anchoring the portfolio with world-class leaders, they will also look for higher-return ideas. "At the end of the day, I care not whether I'm in hips and knees or oil," says Sturm. "I care whether you're generating free cash."
Using a blended top-down, bottom-up approach, the team monitors approximately 400 companies in the resources sector and 400 companies in non-resources. The 800 in the aggregate are then whittled down to 200 for which detailed valuation models are compiled.
Typically, Sturm will hold 50 core positions in all of his portfolios. The holdings tend to be kept below a 5% weighting, except in the smaller-universe precious metals fund where he allows himself a higher ceiling.
Sturm's sell discipline may be triggered by a major theme shift, better return opportunities or when a company disappoints. Portfolio turnover will vary and will be higher if Sturm changes one of his investment themes. Currently, he is starting to part with some themes that he feels could be unduly risky, and one of those themes is energy.
In other instances, depending on the company, Sturm may take a buy and hold stance. "There are names that I've held for years and years," he says, citing as examples Manulife Financial Corp. ( MFC/TSX) and the U.S. health benefits company Wellpoint Inc. ( WLP/NYSE).
Sturm, 45, has spent his entire investment career at Mackenzie. He worked at the firm part time while pursuing university studies and competing in ballroom dancing with his partner and wife.
After obtaining a bachelor of commerce from the University of Toronto in 1983, he joined the firm as a research analyst and junior portfolio manager. In 1985, the couple put aside their dancing shoes to focus on family and Sturm's career. Sturm received the CFA designation in 1986 and became a senior portfolio manager in 1987. One of his recent achievements is being named Fund Manager of the Year at last year's Canadian Investment Awards.
Cautious at the beginning of this year, Sturm raised his cash position in Mackenzie Growth to 15%, its highest point in several years. But since the second quarter, he has reduced cash in anticipation of better-priced opportunities. Consequently, as of July 31 his cash reserves have shrunk to 8.2%.
Looking ahead, the elimination of the foreign property rule for RSP eligible funds is good news for Sturm, who says he was at the former 30% limit for foreign content all the time. "We may well roam freely without a ceiling," he says, welcoming the flexibility to invest outside Canada.
"We are preparing for a period in the later half of this decade, where growth investing will see a renaissance," Sturm predicts. "Many of the world's best growth companies exist in foreign markets, particularly in the U.S."
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