Canada's biggest and best-run companies don't necessarily make it on to Ian Hardacre's buy list. "There are a lot of companies that are well managed, but much too expensive. I'd wait years to buy them—at what I deem to be the right prices," says the 37-year-old vice-president at AIM Funds Management Inc., in Toronto, and lead manager of the $1.76-billionTrimark Canadian, and the equity portion of the $2.47-billionTrimark Select Balanced.
Conversely, Hardacre avoids weak companies with poor management teams, which tend to be statistically cheap. "I need an equal balance between these factors—well managed businesses, and inexpensively priced—though sometimes one has a little more weight than the other. It's more of an art, than a science." Being contrarian is another dimension in his stock picking. Take, for instance, Molson Inc. ( MOL.A/TSX). Acquired about four years ago, the brewer's stock had languished because of diversification into non-traditional areas. But it was revitalized under new management and a return to its roots. "Molson has great brands and a lot of free cash flow. It's a steady business," says Hardacre. "The stock has gone up over 200% for us."
Hardacre has always been interested in investing, and recalls a foray into stocks at age 10. He bought shares in a convenience store chain, and sold them three years later for a paltry profit. "It was an interesting experience," he chuckles.
Undeterred, the Toronto native studied finance at McMaster University. Upon graduating in 1989 with a bachelor of commerce degree, he worked in commercial banking at Hong-Kong Bank of Canada and studied for his MBA at McMaster at night.
After about a year, he enrolled as a full-time student and completed the degree in 1992. Jobs in investment management were hard to come by, so he spent two and a half years at Bank of Nova Scotia analyzing corporate credits. That experience helped him land a job in 1995 as a communications and technology analyst for the Ontario Teachers Pension Plan Board.
In January 1997, he joined Trimark Investment Management Inc. as an assistant portfolio manager and worked with chief investment officer Bob Krembil and the then head of the Canadian equity team, Vito Maida.
Krembil, co-founder of the firm (which was acquired in 2000 by AIM's parent) served as a mentor. "The most important thing was your thesis," Hardacre recalls. "What did you see in that stock that no one else saw? That's how you make money. And if the idea doesn't play out, you should sell it. You no longer have a reason to own it."
In February 1999, Hardacre was promoted to lead manager of Trimark Canadian and Trimark Select Balanced. Backed by five analysts, he draws upon a list of about 150 of the largest publicly traded companies in Canada. But he steers clear of many that he considers "value-destroying", or those clouded by corporate governance issues.
He also maximizes the foreign content for diversification purposes. "The selection of businesses in Canada is so narrow. If you want to do the best thing for your unitholders, it's hard to avoid great businesses in the rest of the world," he says, adding that he's been defensive from a currency standpoint and has hedged about 25% of the U.S. dollar exposure in Trimark Canadian back into Canadian dollars.
All told, Hardacre holds about 50 equity names in the funds that he manages, with no more than 5% of fund assets in any one holding. His portfolio turnover is around 40% a year.
Over the last three years, during some of the most adverse equity markets in decades, Hardacre has guided both of the funds he manages to top-quartile performance. "It's the end of a bubble, not just in technology but in valuations," he says. "Many other sectors got pulled along as well."
The days of consistent double-digit returns are gone, he contends. "Valuations are okay, not great, but not expensive either. If you can get low double-digit returns, you should be very happy."
That is Hardacre's performance target, as he strives to buy stocks at a discount to their intrinsic value while also preserving capital. "We try to have a good margin of safety by not grossly over-paying. That's the key," he says.
