Ainsworth: U.S. banks more attractive than Canada's

Christian Charest: For Morningstar, I’m Christian Charest. We are here today with veteran portfolio manager, Ian Ainsworth. He is an award-winning manager who was named twice Portfolio Manager of the Year during his many years at Altamira, and for the past 10 years, he has been managing a suite of growth-oriented funds at Mackenzie. Ian, thank you very much for being with us.

Ian Ainsworth: Thank you, Christian.

Charest: Now, in a previous video, we talked in detail about your investment style. I'd like to go back on the idea of the themes that you follow. Now, there are different levels of themes as you explained to us. There are the very long-term macro themes, some more intermediate and some of the more immediate themes that you look at. And it's the latter that I'd like to focus on. What are some of the – I guess we could say micro themes that you are very bullish on right now?

Ainsworth: Well, I mean, you have to look at it almost by sector, by industry sector, and analyze that industry and the dynamics in that industry to come up with, what are the themes within that industry? So, in technology which is quite familiar to me, I mean, we've got this issue of the cloud versus the past way of doing business, which was putting servers in your office kind of thing. And that's having big impact on a lot of companies like Cisco and a lot of switch companies, a lot of people that build that infrastructure, and it's actually creating some real difficulties for them.

And so what we have done is moved up out of that area into what we call services. And rather than own this disrupting infrastructure that's going through so many changes, we've owned the services that take advantage of the benefits that this disruption is creating. It's a little complicated, but effectively we'll own companies like LinkedIn‎ rather than Cisco. We will own companies like Google rather than own the hardware companies that exist underneath that where you are getting a lot of commoditization. So that's a theme that's within the industry and that's really worked well. So our biggest positions are in that space – companies like Google and LinkedIn.

In the healthcare area, we see that the bigger pharmaceutical companies which for decades have suffered from issues of what they call, the patent cliff and a lot of their products coming off patents and being commoditized have kept us away from that group; and we focus more on what we call orphan drugs. Companies that produce drugs that are for a very small universe of people, but they do amazing things that are really life-enhancing, in fact life-saving. And typically these drugs are – there is not a lot of competition in these drugs because it's such a small universe, only one company provides the drugs. And therefore it has the benefit of the – and it's also a small market relative to these giant markets. So, it has less price competition, less price oversight and has very big benefit. These companies like Shire, like BioMarin and others are really good performers against the big pharmaceutical companies. So within the industries, you get certain trends that we like to look at.

Charest: I know one of the long-term trends that you are following right now is the U.S. You think there is rejuvenation going on in the U.S., tell us more about that.

Ainsworth: Right, exactly. So, yeah, I think that a large part of that is played-in through the banking system. So, we have favoured the U.S. banks over Canadian banks for the last couple of years partly because the U.S. banks have more leverage to what's going on in the housing market in the U.S. versus our situation in Canada, which isn't as attractive in terms of the dynamics for the banking system. At the same time, we think the relative values are good as they are across the U.S. in a variety of industries. And so we've shifted our financial exposure more to the U.S. We've looked at U.S. industrial companies because we think that the lower cost of energy or the more assurable supply of energy is giving them the competitive advantage. So, that's been factoring our company's buying [something] like Chart Industries in terms of our portfolios and a variety of industrial players.

Charest: What about Asia? I know China is a big thing for you. How do you play that?

Ainsworth: There's many ways to play Asia. I mean, I think – and one way of playing Asia is buying good U.S. companies. In fact, companies like Starbucks. Starbucks has been in China for 20 years. It's one of our positions; one of our bigger positions in the U.S., Starbucks is opening about 15 stores in India now. But India will be eventually probably their second biggest market – they think it could be. So it shows you the growth opportunity for a U.S. company with considerable experience in emerging markets is quite impressive. And I think that plus the fact that they have very professional management, give them a competitive edge over the domestic players in these markets that they are moving into and we take advantage of the history that they've got.

So I think, you can play it that way through U.S. companies that are expanding into these markets or you can play it through companies like Intertek out of the U.K. which we own, which basically does product testing to ensure quality, so that we're – so that Chinese exports, for example are not containing lead or don't have defects. And that's a big issue in the export markets, and there's only two companies in that space and Intertek is one of them – is one of those and a very big player. It's been a great performer for us. So you can buy domestic – you can buy companies in developed markets that have a strong leverage to what's going on in Asia, but are not a direct ownership in Asia.

Charest: Thank you very much for being with us. Ian Ainsworth, Portfolio Manager at Mackenzie Investments.