Robert McKim, president of Halifax-based SEAMARK Asset Management Ltd. and head of the team managing portfolios for ClaringtonFunds Inc., BMO Nesbitt Burns Inc. and Manulife Financial Corp. among others, appreciates the clarity of mind that comes with the firm's Maritime location.
While he's been doing a little more travelling and client relations work since he took over the role of CEO from SEAMARK's chairman Peter Marshall last January, the native of Saint John, N.B., likes to return to the East Coast to do his analytical thinking. "We like to be away from the madding crowd, and Omaha was taken by Warren Buffett," jokes McKim. "As long-term investors we must have conviction in our own thinking, and in Halifax we are less influenced by the noise."
SEAMARK, which manages about $11 billion in mutual funds, institutional accounts and wrap accounts, has established a methodical investment process that involves careful attention to corporate stock valuations, balance sheets, management strength and growth potential.
Although there is room in SEAMARK's equity portfolios for small and medium-sized names, it focuses on world class, brand name companies, buying them when they are reasonably priced and holding them for the long term.
"Our stock-picking process drives us to the dominant companies with large capitalizations," says McKim. "We are looking for a depth of resources that will see a company through competitive threats and recessions, giving it the ability to expand or keep up its efforts in research and development."
The largest equity mutual fund under his team's stewardship isClarington Canadian Equity A, with $291 million in assets. The fund showed a one-year gain at Oct. 31 of 7.5%, less than the category's median return of 11.9%. Over the more meaningful five-year period, it showed an average annual gain of 6.8%, just under the category median of 7%.
McKim is willing to be patient to allow his approach to pay off, and long term can mean indefinitely. Portfolio turnover has averaged an extremely low 7.3% for the past five years, and several companies have been in the portfolio for the 22 years since SEAMARK was launched, including TD Bank ( TD/TSX), Thomson Corp. ( TOC/TSX) and Johnson & Johnson Inc. ( JNJ/NYSE). "Our turnover is very low, and highly tax-efficient," McKim says. "We are investors not traders."
McKim certainly doesn't mind being out of step with the crowd. Before joining SEAMARK, he was the sole holder in New Brunswick of the Chartered Financial Analyst (CFA) designation, earned in 1981. He graduated from Acadia University in Wolfeville, N.S., in 1975 with a BBA degree. He then worked for New Brunswick Telephone Co., overseeing the management of the pension fund and progressing to senior financial analyst.
McKim, who joined SEAMARK as a portfolio manager in 1984, became president in 1996. "My pension plan responsibilities at NB Tel put me in contact with money managers," McKim says. "I concluded that money management would be an interesting career."
The patient investment process at SEAMARK involves the compilation of a "master list" of 200 Canadian, U.S. and international companies. When these companies trade at a discount they are potential buys. When they become overvalued they are trimmed or sold.
"The exercise is two-fold," McKim says. "The first is to identify companies that are attractive in the long term that we would want to own in the portfolio at the right price. The second is to consider the current price relative to the company's prospects."
McKim makes maximum use of the 30% foreign content allowance in Canadian equity funds. He buys "growth at a reasonable price" on the foreign side, while Canadian stocks are chosen using stricter value criteria.
"The combination of Canadian value with U.S. and international growth brings style neutrality to the portfolios," he says. "We take the best of what each market has to offer. Canada doesn't have great opportunities in health care, for example, while the U.S. does. On the other hand, Canada has great financial companies."
To keep the portfolio diversified, McKim limits Canadian sector weightings to 30% of the Canadian equity portion, and does the same with the foreign equity component. Individual stocks account for no more than 10% of their respective geographic group.
"We are opportunists, not indexers," McKim says. "We don't have to be in all sectors, but we are committed to diversification across at least eight sectors."
In addition to carefully assessing financial characteristics, McKim and the SEAMARK team have a lengthy list of criteria for judging the quality of management.
"Management is broader than the characteristics of a few individuals," he says. "We question whether or not the team has put things in place to ensure the company's competitive position long-term and whether it's achieved productivity from its R&D. If the company's products are consistently leaders, it speaks highly of management."
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