Bill Shaw, manager ofMavrix Dividend & Income and senior vice-president at Mavrix Fund Management Inc., has a long and impressive string of degrees and professional designations attached to his name. His educational achievements, which have moved in tandem with his evolving career, include bachelor of arts, bachelor of administrative studies, chartered accountant, certified management accountant, MBA and certified financial planner.
"My background has taught me how financial statements are constructed, and how to decipher them," says Shaw, who has managed the $95.9-million, Morningstar five-star rated fund since September 1998. He also manages the $6.8-millionMavrix Canadian Income Trust, which was formed in late June. Shaw says the discipline and analytical skills imparted by his studies have been a tremendous asset to him in picking investments, including stocks and income trusts. Selling covered call options on fund holdings has also enhanced his returns.
Along with providing regular monthly distributions, Mavrix Dividend & Income was the best year-to-date performer in its category at Oct. 31, 2003. It also had the best returns over the three- and five-year periods as of that date. Shaw has guided it to a five-year annualized gain of 14.9% at Oct. 31, far ahead of the category's median return of 7.8%.
To put up these kinds of numbers, Shaw uses a similar evaluation process, whether he is buying shares, corporate bonds or income trust units. He is a "strict value investor" who relies on a computerized screening system that identifies the best companies according to quantitative ratios such as price/earnings, price/book, price/cash flow and debt/equity. When companies pop up on a screen for the first time, or something shows up on more than one screen, he takes a second look.
Once he has identified attractive candidates, he examines financial statements, carefully combing through the notes and fine print. He then "kicks the tires," talking to his contacts in the investment community and other knowledgeable sources for information on the company, its competition and the operating environment. "If everything passes muster, we try to get a meeting with management," Shaw says. "If we're still comfortable after meeting the key people, we'll make our investment."
Face-to-face meetings are useful in determining senior executives' objectives and how they intend to surmount obstacles. "Undervalued companies are frequently turnaround situations, and it's important to know how management will avoid repeating the mistakes of the past," says Shaw. "If the answers to our questions were not consistent, we would be concerned."
If Shaw's legwork confirms the value of a company, he is comfortable taking a significant position. He prefers a focused portfolio of 20 to 30 names. Top holdings frequently account for 5% to 8% of portfolio assets, and typically the top 10 holdings make up half the portfolio.
Shaw is rigid about selling when a security hits his target price. The fund's turnover rate was about 140% for the first nine months of this year, and is usually around 200% a year, he says. "Valuation targets can be revised if something changes, but when a company passes our target price, it's overvalued. Hanging on is risky, as momentum can easily reverse. A bird in the hand is worth two in the bush."
The fund's mix of stocks, income trusts and bonds can shift, depending on where the opportunities are, and Shaw is not afraid to overweight industry sectors in his quest for value. He says the rising popularity of income trusts has "stretched" the valuations recently, and it's getting harder to find good buys.
Shaw originally planned to be an economist, graduating from the University of Toronto with a bachelor of arts in commerce and economics in 1982. With jobs scarce in economics, he ended up doing accounting work for a small automotive products company called A. E. Engines Ltd.
Deciding to pursue accounting more seriously, he joined Touche Ross & Co. in 1985, and stayed there for five years while obtaining a bachelor of administrative studies, as well as CMA and CA designations.
In 1990, he left the firm to work for a private family as their accountant and financial advisor, and in 1995, he joined Hodgson Robertson Laing Ltd. as an investment counsellor. The firm merged with Yield Management Group in 1997, and in 1998 it became YMG Capital Management Inc.
Shaw and two other partners from YMG purchased the firm's mutual fund operations in August 2001 and set up shop as Mavrix. "I love what I do," says Shaw. "Being a money manager is dynamic and exciting. It builds on all my work experiences and formal education—and it's the most fun."
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