Tony Genua, the new lead manager ofAGF American Growth Class, "feels totally comfortable" with his makeover of Canada's oldest U.S. Equity mutual fund.
"Growth has never been lower, relative to value, in over 20 years," says Genua, who took over the fund on Jan. 17 from the departed Steve Rogers. "I think of it as a coil that's wound up and it's going to go the other way. I don't know if it's going to happen this quarter, next quarter, but I believe that in the next number of years growth companies are going to do well." As a senior vice-president of Toronto-based AGF Funds Inc. and the head of the U.S. equity team, Genua is responsible for $1.3-billion in total assets under management in U.S. equities.
The largest portion is the $622-million AGF American Growth Class, launched in April 1957 and which has fallen on hard times. The Morningstar two-star rated fund is a bottom-quartile performer over the past one, three and five years.
To help turn around the fund's losing streak, Genua will adhere to stringent sector constraints. If the sector is less than 10% of the S&P 500 Index, the maximum weight in the fund would be the sector weight plus 10 percentage points.
If the sector is more than 10% of the S&P, Genua will hold up to the maximum of the sector weight plus 15 percentage points. Other risk controls include a minimum stock holding of 1% and a maximum of 8% of fund assets.
To start, three new sectors have been added to the portfolio. The fund now holds 1.9% in materials, 2.1% in consumer staples, and 8.5% in energy. When former manager Rogers left, only five of the 10 industry sectors were represented.
Genua's new look for the fund is also reflected in individual stock picks. Six of the 10 largest holdings are different names from those that made the top 10 under the previous manager.
Four of them -- Starwood Hotels & Resorts Worldwide Inc. ( HOT/NYSE), retailer JC Penney & Co. Inc. ( JCP/NYSE), and energy-sector picks Transocean Inc. ( RIG/NYSE) and Apache Corp. ( APA/NYSE) -- are entirely new to the fund.
Under Genua, AGF American Growth Class will hold 30 to 50 high-quality growth names with an average market cap of US$50 to 80 billion. Not surprisingly, he expects the portfolio turnover to be higher than normal after the makeover. "My history has been in the low end of the 30% to 40% range," he says.
Genua was formerly a principal of Toronto-based KBSH Capital Management Inc., which he joined in 1998. He was responsible for managing KBSH's U.S. equity and wrap portfolios.
Previously, from 1989 to 1998, he was vice-president of Scotia Investment Management Ltd., also in Toronto. He managed U.S. equities and was responsible for Scotia's Latin American fund.
Genua, 50, received a BA from the University of Western Ontario in 1976. He then pursued additional studies in economics and business at McGill University from 1976 to 1977.
In 1978, he joined the former Canada Permanent Trust, in Toronto. He moved to RBC Dominion Securities in New York in 1986 as an international strategist, before joining Scotia.
One of a team of three at AGF, Genua also draws on the experience of 14 analysts. On average, he spends 80% of his day focused on analysis of specific companies. The remaining time is devoted to macroeconomic research.
Genua believes he can achieve performance results by always looking for companies that have "catalysts" that could propel the stock price higher. He says the key catalysts for growth include great management with a clear strategy for growth, high market share, innovative research and development, new products, and above-average profitability.
Genua will unload a position if he believes the company is fully priced and sees no further upside. Selling may also be triggered by deteriorating fundamentals, a more attractive candidate, or a drop in the stock price to 20% below his cost.
"Half of the market leaders do not come back to new highs," says Genua, "and the other half take more than five years to recover to new highs. So by maintaining the criteria of meeting a buy criteria, we're going to minimize the damage of holding those types of securities."
As an active manager and to maintain objectivity, Genua begins each day with a clean sheet of paper and a fresh portfolio outlook. "Every stock I hold -- and I insist on this -- must be a buy in the portfolio," he says. "I own units myself, my wife owns units, and I simply have to be willing to buy it every day, or I sell it."
