Gerald Cooper-Key, manager ofMawer World Investment and chairman of Calgary-based Mawer Investment Management Ltd., likes to know his holdings well. But there's probably none he's more familiar with than Barclay's Bank PLC, one of his biggest holdings at the end of 2003. His first job in the financial business after graduating in 1967 from Canford School in England was at the London-based bank.
Continuing to pursue a banker's path, he earned a trustee diploma in finance from the Institute of Bankers in the U.K. In 1969 he moved to Canada, where he spent 12 years in various positions at Royal Trust Corp., starting in the traditional trust business and moving a few years later to the money management side. Excited by the world of investing, he jumped at the opportunity to join Mawer in 1981, where he also had the chance to build a company and participate in ownership. He's been at the helm of Mawer World Investment since it was launched in 1987, and his fund has been recognized for performance excellence. Last year marked the Morningstar four-star rated fund's second consecutive win as International Equity Fund of the Year at the Canadian Investment Awards.
Cooper-Key, who also manages the international component of various funds for Mississauga, Ont.-based Counsel Group of Funds Inc., chooses his investments from anywhere in the world except the U.S. and Canada. He keeps an eye on the MSCI Europe Australia Far East (EAFE) Index, and if any of his positions were extremely overweight or underweight relative to the index, there would need to be a good reason.
About 20 countries are currently represented in the $107.8-million fund. His largest holdings are in Europe and Asia (including Japan), followed by Latin America, Australia and New Zealand and Africa. He's finding some "world-class opportunities" in emerging markets such as South Korea, Singapore and India.
Many of his holdings are in the form of American Depository Receipts (ADRs) listed on the New York Stock Exchange, or GDRs (Global Depository Receipts) listed on the London Stock Exchange. These securities represent ownership in a foreign company's shares, but must meet the listing standards of the major exchanges. This is "somewhat of an endorsement," Cooper-Key says, although by no means a "guarantee of purity."
With such a broad geographic mandate, Cooper-Key narrows the field by a computer screening process that identifies financial strength, based on an analysis of debt, cash flow, dividends and "high consistency and visibility of profits."
He looks for superior growth relative to peers, as well as low valuations relative to earnings, book value and cash flow. "If we find a company with low valuations and a high growth rate, it's worth going to the next step, which we call SWOT -- strengths, weaknesses, opportunities and threats. If there are any overriding and significant concerns, it doesn't pass the test."
Cooper-Key is interested in everything from small caps to global giants. "We seek companies that can create wealth," he says. "It boils down to companies that can make a better return on capital than their cost of capital."
Although the average market capitalization of his holdings is US$20 billion, he holds several companies with less than US$1 billion in market cap. "A lot of small-cap companies are leaders in their market niche, with better valuations than the bigger companies," he says. "It's a bottom-up process, and we choose stocks based on their fundamental characteristics."
Cooper-Key says the turnover of the equity portion of his portfolio, excluding his cash reserves, is usually less than 20% annually. Last year, it was only 9.9%. "We tend to invest conservatively, and are long-term investors," he says.
He likes to limit his holdings to 50 to 80 companies, enough to diversify risk but still remain familiar with each company. He doesn't hold more than 5% of fund assets in any one name, although typically his limit is closer to 3%.
"If valuations become excessive, we will trim or eliminate a position," he says. "But if a company's stock price is rising, and the value is still there because the fundamentals are improving, we would have no problem holding on. If the fundamentals of a company deteriorate, we will sell, regardless of whether the price is lower or higher than when we bought it."
