You could sum up Greg D. Peterson's top priority as lead manager of the $946-million Mawer Balancedin three words: Don't lose money.
"We view portfolio risk as the permanent impairment of capital, which we try very hard to avoid," says Peterson, a director and senior portfolio manager with Mawer Investment Management Ltd. "Other traditional risk measures, such as standard deviation, are, to us, really only short-term volatility measures and are usually of little interest."
Peterson's asset-mix strategy is based on broad diversification and a longer-term approach. Mawer Balanced holds positions in six Mawer funds, encompassing Canadian, U.S., international, global small-cap and Canadian small-cap equity mandates, and Canadian bonds.
The final word on asset-mix decisions goes to Peterson, "but this fund is really a collective effort of the entire firm." He works closely with Michael Crofts on the fixed-income side, and equity analyst Kara Lilly, along with input from Mawer portfolio managers and the broader research team.
Peterson, who is chairman of Mawer's asset-mix committee, has led the fund-of-funds mandate since June 30, 2006. Under his tenure, the Morningstar five-star fund has an annualized five-year return of 8.6% as of Sept. 30, compared with the median 5.6% return in the Global Neutral Balanced category.
Bonds play an important role, though not a dominant one, in the fund. Currently, says Peterson, the fixed-income weighting is 30%, which is at the lower end of the fund's range of 30% to 50%. He says he can recall only one time when the fixed-income weighting was much higher than 40%.
The bond exposure, obtained through holding units of Mawer Canadian Bond, is exclusively in investment-grade bonds. Relative to the market as a whole, this fund maintains a neutral duration in terms of interest-rate risk, Peterson says. The holdings in corporate bonds are capped at 5% per issuer, and there is broad diversification by issuer, sector and duration.
Though the tilt toward equities in Mawer Balanced implies greater risk of capital loss, Peterson seeks to mitigate equity risk through broad geographic diversification beyond the home market. Over the past five years, he has reduced the allocation to Canadian equities. As a result, only 20% of the fund's current equity holdings are Canadian.
Further diversification to protect capital is achieved across industries, Peterson says. Exposure to a single industry is typically limited to no more than 20% of the portfolio. Individual stock weightings are nearly always less than 6% of equity assets. Small-cap equities currently account for about 15% of the equity position.
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Peterson says the stock-selection approach taken by Mawer is defensive in nature. The first "line of defence" is to buy only wealth-creating companies because these companies typically don't go out of business.
The second line of defence is to buy these companies at a discount to intrinsic value. Peterson says this is designed to provide a "margin of safety" as well as superior returns. The third line of defence is strong fundamentals. The Mawer team favours companies with robust free cash flow and strong balance sheets.
Among Mawer's stock picks is Gazit-Globe Ltd. GZT, a holding company for commercial real-estate investments worldwide. "The company has an excellent management team," says Peterson.
Gazit-Globe invests globally in shopping plazas and strip malls in areas with strong current demographics and traffic patterns. "They have built a resilient cash-flow stream by anchoring their properties with grocers and drug stores, businesses that are less economically sensitive and draw regular, frequent traffic."
Peterson, 45, earned a bachelor of commerce degree, majoring in finance, in 1991 from the University of Alberta. His career began that year with Royal Bank of Canada as a personal banker.
In 1995, he joined Royal Trust's wealth-management group as an account manager. In 1997, he moved from Edmonton to join T.E. Investment Counsel in Calgary as an investment counsellor. He received the CFA designation in 1998 and left the firm in 1999. He then worked at BMO Harris Private Banking as a director and investment counsellor before joining Calgary-based Mawer in 2002.
Peterson considers his background and current work as an investment counsellor an advantage in understanding client needs. "As part of my role, I still work with high-net-worth clients," he says." I think it's important to bring that perspective to management, how our decisions may impact our investors and clients, and their sensitivities on how we have positioned the portfolio as well."
