Peter Moeschter is a long-term thinker. As manager ofTempleton Canadian Stock as well as the stock components ofTempleton Balanced andTempleton Canadian Asset Allocation, he looks half a decade ahead when making decisions in today's stock market.
"In looking for opportunities I put less emphasis on what's obvious today and more on what could materialize in the future," says Moeschter, vice-president and research analyst at Franklin Templeton Investments Corp. and lead manager of the $397.8-million Templeton Canadian Stock since January 2001. The greatest opportunities are in companies that are out of favour, he says, echoing the sentiments of company founder Sir John Templeton. These companies may be undergoing a restructuring, the business cycle may have turned against them, or they may have been oversold due to temporary difficulties.
Now in his seventh year on the team overseeing the funds, Moeschter is a true believer in the value philosophy. But he was convinced of its merits long before being hired by Templeton's global equity management group in 1997 as a research analyst.
Before joining Templeton, he worked as an analyst for the Workers' Compensation Board of Ontario and, before that, for Aetna Capital Management Ltd. He began his career analyzing stocks for the pension division of Ontario Hydro, after obtaining a master's degree in business administration from Sir Wilfrid Laurier University in 1988. He later completed an MBA at York University in 1993.
"We look for companies with earnings power," Moeschter says. "Then we estimate the long-term revenue trends and what the future margins will be. Based on five-year projections, we apply measures such as price-earnings and price-to-book to decide if a stock is a bargain today. Once we buy, our typical holding period is five years or more."
Moeschter usually takes his time accumulating positions, waiting for attractive pricing opportunities. Then he waits patiently for his thesis to unfold. Turnover in his funds is a relatively modest 25% to 30% a year, which reflects his committed approach. "We don't seek short-term opportunities to trade stocks," he says. "We are deep value investors and focus on the names that offer solid, long-term rewards."
For example, he was a big buyer of Canadian banks a few years ago when technology stocks were all the rage and "bricks and mortar" were out of favour. "Everyone was focusing on Internet stocks at the time, and value stocks were suffering," he says. "In hindsight, it was a great time to buy, and we've reaped the benefits over the past three years."
For the three years ended Nov. 30, Templeton Canadian Stock showed an average annual gain of 4.6%, beating the category's median loss of 0.3%. For the one-year period the fund gained 13.3%, slightly less than the median gain of 13.7%.
With financial services making up almost 20% of the fund, Moeschter has recently been taking advantage of high bank share prices to trim back on his positions. Sell targets are established when stocks are bought, although changes in business prospects can alter them.
Moeschter generally likes a stock to account for 1.5% to 2% of fund assets when he buys, but will not let any stock grow to more than 5% of assets. "We are big believers in diversification, and don't want to see the fund vulnerable to any one stock," he says. "In the course of managing a portfolio, there will be some stocks that don't work out, and we don't want to add volatility by having these stocks hurt us too much."
Moeschter's portfolio usually contains about 100 stocks. Typically, he holds 45 to 50 Canadian names, and smaller positions in 40 to 50 foreign names in the 30% foreign content component. Foreign stocks are chosen from Franklin Templeton's internal list of bargains around the world, and Moeschter seeks industries that are not well represented in Canada, such as pharmaceuticals.
He likes to spread assets across as many sectors as possible, but is not concerned about matching any market indices and has no firm limits on sector weightings. "A sector that has good value will have a larger weight," he says. "We don't restrict ourselves to any specific cap, but at the same time it's not prudent to be too dependent on one idea or sector."
Although Templeton Canadian Stock has a large capitalization bias, Moeschter will hold up to 30% of assets in smaller companies. "The small to medium companies are less discovered, and can provide us with ideas that are not as well owned by other funds," he says. "They are still value stocks, but can add some charge to the portfolio."
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