Ted Macklin

An active stock-picker who believes company fundamentals come first.

Jade Hemeon 10 September, 2004 | 1:00PM
Ted Macklin, lead manager ofGGOF Canadian Large Cap Value and managing director of Guardian Capital LP, seeks companies with strong management teams, financial strength, and potential to grow faster than the economy. But he's always on the lookout for potential weaknesses, and has identified certain danger zones.

For example, he says some companies are "buy and hold," which means they have a talented management team, a strong balance sheet, and are leaders in their field. But because their attributes are widely recognized, they usually tend to be fairly priced in the market, making further gains hard to come by.

Other stocks are "two decision" stocks. Included in this category are resource companies that could have a top-notch management team but are not attractive when commodity prices are out of favour.

"Value traps" are companies that are attractively priced, but have something wrong with them. "You may want to own these value companies if you can identify a catalyst for change," says Macklin, who also manages large-cap equity pools for Toronto-based Guardian's pension and institutional clients.

He avoids "imploders" which can be extremely cheap, but where there's a good chance things will get worse before they get better. Imploders may have weak balance sheets or an unfavourable industry outlook, or they could be companies attempting a restructuring under a new management team.

"We won't be early in buying an imploder, which means we may miss the initial uptick," says Macklin, who has guided the fund to a second-quartile return in the Canadian Equity (Pure) category over the past three years and a three-star Morningstar Rating, while beating the benchmark S&P/TSX 60 Index by more than a full percentage point annually after fees. "It's not worth the risk for the haircut that could come about."

Minimizing risk is top of mind for Macklin, who has been managing the $123-million GGOF Canadian Large Cap Value since October 2000. He and his eight-person team usually conduct 400 to 500 management interviews a year.

"A face-to-face interview allows you to read the body language and get a better feel for a company," Macklin says. "You don't get any inside information, but you can get a sense of how much conviction there is."

He also digs for information on a company's customers, suppliers and competitors. "Managers tend to present a favourable perspective on their own company because they're trying to sell the stock, but they also provide a useful perspective on other companies in the portfolio."

Macklin's more than 20 years of experience in the financial business has honed his analytical and listening skills. He graduated from the University of Toronto with a bachelor of commerce and began working as an analyst for the corporate development division of Confederation Life. While at Confed he taught an industry course in economics and investment that ignited his own stock-picking instincts.

"I'd always been intrigued by what makes companies tick," he says. "My grandfather had an engineering practice, but after the Depression he essentially made his living off the stock market, and my father was an actuary, so I've always had a slant toward the financial side of things."

In 1986, Macklin joined Elliott & Page Ltd. as an investment analyst, becoming a portfolio manager by the time he left in 1997. He then joined Bolton Tremblay Inc., where he managed Canadian equity portfolios for pension clients and endowment funds, and became managing director at Guardian Capital in October 2000.

About 80% of the GGOF Large Cap Value's holdings are listed in the S&P/TSX 60 Index and 20% in the TSX MidCap Index. Macklin runs a focused portfolio with 25 to 40 names, and currently holds 34 companies.

No one sector can account for more than 25% of fund assets. This is an internal rule that was put in place primarily to limit the impact of bank stocks. Banks currently have a 26% weighting in the benchmark index and an 18.5% weighting in the fund.

"For diversification and risk management reasons, no matter how much we like a sector we won't hold more than 25% of assets in it," Macklin says. "On the other hand, we're unlikely to have zero assets in any major sector, but theoretically we could. We're active stock-pickers, and company fundamentals come first."

Selling decisions are based on a variety of factors including erosion in fundamentals, negative earnings surprises, a change in the catalyst, management change, or balance sheet deterioration. If a stock becomes overvalued or too big a part of the portfolio, it will be trimmed. However, Macklin says he is not a frequent trader, and turnover averages a modest 30% to 40% annually.

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Jade Hemeon

Jade Hemeon