Brian Brownlee, lead manager ofBeutel Goodman International Equity andBeutel Goodman American Equity, says his portfolios are "built from the ground up" on a stock-by-stock basis.
"Whether you are overweight or underweight on a country basis is less important than it used to be 20 years ago," says Brownlee, vice-president, global equities, at Toronto-based Beutel Goodman & Co. Ltd. "The economies are more integrated; the large multinational companies are affected by the same things. It's more important that you pick the right companies and invest at the right price." Brownlee is responsible for $250 million in total assets. He has managed the $30-million international equity fund since its inception in September 1992 and has led the $15-million U.S. equity fund since October 2002. The portfolios mirror the pooled funds that the firm manages for institutional clients.
The foundation of Brownlee's stock-picking approach is fundamental analysis, which leads to an estimate of future cash flows and a target price. He looks for stocks that trade at about a one-third discount from their target price and that can generate at least a 50% return over a two- to three-year time frame.
To avoid "falling in love" with a stock when it hits the original target price, Brownlee will sell at least a third of the holding, then re-evaluate the outlook for the company. If the target price can be raised, the balance of the holding will be held for further appreciation.
Preferring concentrated portfolios of around 30 mid-to-large cap holdings, Brownlee reduces risk in the international equity fund by diversifying across countries and sectors. As of Sept. 30, the U.K. was the single biggest country weighting at 29%, followed by 21% in Japan and about 35% in continental Europe. All broad industry sectors are currently represented.
The average stock holding is characteristically about 3% and the largest position is 6%, the point at which Brownlee will start trimming. The cash position is almost always less than 10% and typically less than 4%.
When Brownlee took over the U.S. equity portfolio, it was more volatile than he was comfortable with. Over a six-month period, he repositioned the fund with more quality, consistent performers with a value bias. "The whole idea was to create something like we have on the international side," he says.
Though Brownlee tends to lag in strongly rising markets, he has more than made up for lost ground in falling markets. "It's more a steady-as-she goes protection on the downside, and we'll capture most of the upside cycles, given our investment style," he says.
In calendar 2003, for example, when the median International Equity mutual fund gained 12.2%, Beutel Goodman International Equity lagged with a 9.8% return. But in both 2002 and 2001, despite losing money, the fund had substantially smaller losses than the median fund.
Brownlee and his long-time colleague Gavin Ivory, who have worked together since 1992, are the two key members of the portfolio team. They divide the stock-picking responsibilities geographically, with Ivory responsible for continental Europe and Brownlee responsible for the rest.
In addition, there are 10 other sector analysts among the Canadian and U.S. teams. Although analysis is based more upon fundamental numbers, Brownlee and Ivory travel at least twice a year to meet management overseas.
Brownlee received a bachelor of commerce degree from Queen's University in 1975, followed by an MBA in 1977. After graduating, he joined Crown Life Insurance in Toronto as an investment analyst. In 1980, he moved to Vancouver-based Pemberton Securities as an investment analyst. That same year, he earned the CFA designation.
Recognizing early on that he wanted the satisfaction of making investment decisions, Brownlee welcomed the opportunity in 1982 to be a member of the team managing the CBC Pension Fund.
He subsequently moved to Ottawa as the fund's foreign equity manager. In 1991, he moved back to Toronto to join Beutel Goodman as vice-president, international equities.
Today, seeking opportunities where prices are depressed, such as Japan, Brownlee is finding good value in world leaders such as camera manufacturer Canon Inc. and automaker Honda Motors Ltd. The Japanese market "certainly had a big recovery last year after a 10-year downturn," he says. "But we still think there's great opportunities there."
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