Robert Taylor's more focused approach is paying off for investors in the $87-million Canoe Equity and three other mandates at Calgary-based Canoe Financial that he assumed last year.
"There's been a huge turnaround in the performance of the portfolios since we put our strategy into place," says Taylor. "We made significant changes to the funds. We probably turned over about 80% of the portfolios."
Based in Toronto, Taylor is a senior vice-president and portfolio manager at Canoe. In addition to Canoe Equity, he has also led Canoe Canadian Monthly Income Class, Canoe Canadian Asset Allocation Class and the closed-end Canoe EIT Income EIT.UN, since July 29, 2013. As a member of Canoe's asset-mix committee, Taylor works in consultation with managers at Aegon Capital Management Inc., which manages the fixed-income holdings.
Taylor cut back substantially on the number of holdings in the Canoe funds that he manages. For example, Canoe Equity held 48 stocks as of April 30, down from 99 in August 2013.
Taylor's mandates typically hold 40 to 50 names. Holdings in individual stocks will range up to a maximum of 5% to 7% of the overall portfolio. Cash is currently at 10% of the portfolio.
Using a growth-at-a-reasonable-price approach, Canoe Equity is biased toward quality, blue-chip companies in Canada and the United States that have "a long runway for growth."
The core of the fund is predominantly large-cap holdings but the portfolio will hold up to 40% in small- and mid-cap stocks if they offer more growth opportunities.
Taylor notes that the Canadian equity market is highly concentrated in financials and resources stocks, making it necessary to add foreign holdings. "There's a lot more breadth in the U.S.," he says, "which helps with diversification and to balance out risk."
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Reflecting that view, Taylor boosted the U.S. weighting in Canoe Equity to 25.7%, up from 19.5% as of August 2013 . The fund can hold up to 49% in non-Canadian securities.
As for sector exposure, the weighting in energy was increased to approximately 30% in the equity fund, up from 19.4% as of December 2013. "Taking advantage of my expertise in energy," says Taylor, "and here in the firm our relationships with the oil patch, we have a lot more mid-cap exposure in energy names."
An example of "a huge success within our portfolio" is Calgary-based Storm Resources Ltd. SRX, adds Taylor, who has a history of owning Storm at his former employer, BMO Global Asset Management. The oil and gas exploration company, among the top positions, reflects confidence in the management team, strong assets and opportunities for growth. "We bought the stock at $3.30 and it's $5.70 today," says Taylor, "and we feel that there's still a lot more upside in that stock."
The research team includes Taylor and two analysts. Fundamental analysis is done on each company, along with meetings with management. The risk-management process includes running scenario analysis on sector and geographic exposures. "Protecting the downside is extremely important to us," says Taylor, "so we're very mindful on entry and exit points on stocks."
In terms of portfolio turnover, the view is generally to look at companies 12 to 18 months out for potential returns. Historically during Taylor's history at BMO, "we ran about a 40% to 50% turnover in the portfolio."
Taylor, 41, received a bachelor of business administration, honours, from Wilfrid Laurier University in 1996. After graduation, he was a senior associate with PricewaterhouseCoopers until 1999, the year he received the chartered accountant (CA) designation. He then joined CIBC World Markets as a research associate before moving to BMO Global Asset Management in 2002. He received the CFA designation in 2005.
While at BMO, Taylor was responsible for managing more than $4 billion in assets. He was a vice-president and portfolio manager of Canadian equities, and a member of the asset-mix committee.
His decision to move to Canoe "was something that I'd always been interested in," he says, "being part of an accomplished entrepreneurial firm." At Canoe, he is responsible for approximately $1.3 billion in managed assets.
Looking ahead, Taylor expects low interest rates, low inflation and an improving economy will be beneficial for investors. "We think that the longer-term backdrop for equities is quite strong," he says. "Since the crisis in '08, companies have hoarded cash, cut costs and have been reluctant to invest back into themselves, and we think that's about to change."
