Chyanne Fickes, vice-president of investments at Stone Asset Management Ltd., manages a Canadian Equity fund with a mandate to shun mining, forest products and gold stocks. The ban on deep cyclicals hasn't hurt her performance, as the $34-millionStone & Co. Flagship Stock Canada delivered an impressive gain of 23.5% for the year ended Feb. 28, more than twice the category's median gain of 10.2%.
"I have a growth mandate, and rocks, trees and golds tend to outperform only at certain points in the economic cycle," says Fickes, who manages about $115 million in various versions of Stone & Co. Flagship Stock Canada. She is also manager ofStone & Co. Health Sciences and co-manager ofStone & Co. Flagship Growth Industries. Stone imposes no restriction on energy stocks, however, and Fickes has a 50% overweighting in energy versus the S&P/TSX Composite Index. That's "an aggressive stance" relative to the conservative habits she acquired in her previous role as a pension fund manager for Canadian Pacific.
"I've been overweight in energy stocks for the past two years," she says. "It was a valuation call originally, and I still believe energy stocks are undervalued."
When Fickes sets out to pick stocks, she first takes a macroeconomic view, assessing broad economic trends, the direction of interest rates, and the outlook for corporate earnings. Then she gets down to more detailed decisions regarding what she wants to own and whether she wants to own more or less than the index weighting.
While her buy and sell decisions are heavily influenced by valuations, she also pays close attention to the personalities and character of the people running companies, and often relies on intuition.
"Management sets the tone," she says. "If there's a bad guy at the top, it trickles down. I can't say enough about the importance of management. You have to be able to believe what they're telling you, otherwise it's not worth owning the stock."
Fickes personally meets company executives of all her holdings, and the chief trait she is looking for is honesty. She also requires that managers possess intelligence and a passion for their job. "You've got to have someone running the business who really wants to do the work, and who is not there just for the stock options and pension benefits," she says.
One of the things Fickes likes about her own job is that success is easily and continuously measurable in performance numbers. When she was younger, she headed for a career in science and possibly medicine, but after completing her bachelor of science in physiology at McGill University in Montreal in 1976, she decided she didn't like "cutting things up" and switched to finance, completing an MBA at the University of Western Ontario in 1978.
Her first job was as an equity analyst at Confederation Life Insurance Co. She moved to Canadian Pacific in 1983 as a pension manager. There, she spent 10 years specializing in U.S. stocks, followed by 10 years managing the Canadian portfolio.
Fickes joined Toronto-based Stone in November 2002. "I always liked the idea of running money and I don't like playing office politics," she says. "As a money manager, performance speaks for itself."
Fickes allocates up to 15% of her portfolio to small cap stocks, particularly those that offer exposure to industries unavailable through large Canadian companies. She also holds a handful of income trusts.
Currently, she is avoiding the U.S., since she is concerned about the weakening U.S. dollar. But she likes Canadian companies that have international exposure. "I'm not smart enough to get a U.S. stock right enough to make up for a potential drop in the currency," she says.
Typically, Fickes holds 40 to 50 stocks. Her largest position is currently Manulife Financial Corp. ( MFC/TSX), at about 7% of assets. She usually accumulates a 2% to 3% position at the outset, and sells if the stock appreciates, limiting any one company to about 5% of fund assets. Her turnover is about 30% annually.
If she doesn't like the outlook for certain sectors that she is allowed to hold, she avoids them if they're small and underweights them if they're large. But she doesn't like to be completely absent from any of the largest TSX sectors. Her sector weightings are within six percentage points, plus or minus, of index weightings, and it is these relative differences that help her beat the market.
"Capital preservation is the key to making superior returns over time," she says. "My goal is steady performance, and when the market takes a big hit I don't want to go down with it."
