Bruce Murray

A five-star manager who's had a lifetime fascination with the stock market.

Jade Hemeon 9 July, 2004 | 1:00PM
Bruce Murray, executive vice-president and managing director at McLean Budden Ltd. and co-manager ofMcLean Budden American Equity, became fascinated with the stock market early in life. He bought his first stock, a small oil company called Western Decalta Petroleum Ltd., when he was in Grade 7.

Later on, he obtained an honours BA in economics from the University of Waterloo in 1974, but it took him a while to manoeuvre into the business of his dreams. His first job was as an administrative trainee for the federal transportation department, where he worked until 1976, but made more money actively trading stocks than he did working. In 1976, he joined Crown Life Insurance Co., where his responsibilities included both economics and investment analysis.

"Writing economics reports was half the job, and being a bank stock analyst was the other half," says Murray, who is also part of the team managing Toronto-based McLean Budden's Canadian, international, and global equity funds as well as its balanced portfolios. "It was the investment job that I had my eye on."

Once he found his footing on the investment path, he never looked back. In 1985 he joined investment dealer Nesbitt Thomson Inc. where he became a top-ranked analyst in special situations.

In 1990, he moved to McLean Budden as an equity manager, starting with special situations and technology stocks, and later adding industrial products and resources. He has been a member of the American equity team since he joined, and shares the credit for the strong returns of the institutional portfolios as well as the $541-million McLean Budden American Equity.

The fund is sold on a retail basis to investors willing to put up an initial investment of at least $10,000. Unitholders benefit from a low management-expense ratio of 1.25%, which has helped the fund's already impressive returns.

For the 10 years ended May 31 the fund showed an average annual return of 12.1%, beating the category median return of 7%. Shorter time periods have also shown superior results, with the fund earning a one-year return of 19.2%, well above the median 15.7%.

A look at the portfolio shows some well-known names in the list of top holdings, including Microsoft Corp. ( MSFT/NASDAQ), Pfizer Inc. ( PFE/NYSE), Citigroup Inc. ( C/NYSE), Colgate-Palmolive Co., ( CL/NYSE), PepsiCo Inc. ( PEP/NYSE) and Johnson & Johnson Inc. ( JNJ/NYSE) "There's a large cap bias and we focus on household names," says Murray. "They tend to be global industry leaders and have a history of profits."

Murray's team chooses its holdings from a universe of about 325 U.S. stocks with a market capitalization of US$5 billion or higher, plus another 25 to 30 smaller companies "with characteristics that interest us." Those characteristics include strong balance sheets, earnings growth and stability, and healthy return on equity, and high-quality management.

"While some things are measurable in a qualitative or objective sense, judging management is subjective, and we will have meetings or communicate with the people until we are satisfied that we have an opinion," Murray says. "In personal meetings you can ask a lot of questions and see the reactions."

Murray compares management's prognostications to the black and white facts in financial statements. For example, if a company president predicts higher profit margins, he will examine income statements to see if these expectations correspond with historical performance.

"If the company has been around a long time and has never seen the kind of margins that are being projected, you have to question it," he says. "When the numbers and the story stop working in parallel, it's a warning sign."

The fund holds a maximum of 50 names. In addition to a target price for each stock, the team establishes a desired percentage weighting. As a risk-minimization strategy, each stock is limited to its weight in the Standard & Poor's 500 index, plus or minus 4%.

For example, if a company has a 1% weighting on the S&P 500, its maximum weighting in the fund could be as high as 5%, although typically the weighting is between 1% and 4% of fund assets based on the "quality of the story," Murray says.

If the weighting rises or falls by half a percentage point from the established target, the stock would be reassessed at the team's weekly meeting to decide if the original target still holds. The fund's average annual portfolio turnover is about 40%, although it can be higher in volatile markets as the team buys or sells a fluctuating stock to keep it at the target weight.

A stock will typically be sold or re-evaluated when it reaches its target price. "Often target prices do change," Murray says. "If a stock doubles, it's often because circumstances have changed for the better."

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Jade Hemeon

Jade Hemeon