As manager of the $348-million Mackenzie International Growth, Mark Grammer oversees a portfolio of 50 to 60 names ranging from small-caps to multinational giants.
Grammer and his colleagues at Mackenzie Investments take a three-tiered approach to structuring the portfolio by company size. Tier one, which represents 40% to 60% of the portfolio, is held in large-cap multinational companies.
Tier two, between 20% and 40% of the fund, is invested in predominantly mid-cap companies that tend to operate in a single country or region. Tier three, representing small-cap companies, is limited to no more than 20% of the portfolio.
A screening process identifies companies with above-average sales growth, double-digit earnings growth and high returns on equity. Also favoured are strong balance sheets.
Though this screening narrows the list of potential picks, "most of our ideas are generated from meeting companies," says Grammer. A frequent global traveller, he estimates that he meets with management of more than 200 companies a year.
Grammer is a senior vice-president, investments, at Toronto-based Mackenzie. When the international equity mandate previously managed by UK-based sub-advisor Henderson Global Investors Ltd. was brought in-house, Grammer was given the lead role, effective August 2011.
He co-leads the firm's growth team with Ian Ainsworth, which manages Canadian, U.S., global and EAFE mandates. The team consists of four portfolio managers, including Grammer, and three analysts. They are responsible for just over $2.5 billion in assets.
Grammer expects the portfolio turnover for Mackenzie International Growth to be in the 30% to 50% range, "under 50% for sure." Ideally, he would hold a stock for a decade or longer.
One of the first stocks that Grammer added to the fund, and still holds, was Zodiac Aerospace ADR ZODFY. The company, which sold its boat business years ago, "ticks a lot of our boxes," he says.
First off, Zodiac invests in innovation, and "that's what we love to own, companies that are innovators, because innovators drive growth." As well, the company has exceeded growth expectations consistently year after year, the balance sheet is strong, and the business model is considered sound. Because the company does both retrofit business, where the margins are the same, and new aircraft building, it is not strictly reliant on new orders.
As part of its stock-selection approach, Mackenzie's growth team looks for trends over the next six years that will drive the growth of a company over an entire business cycle or longer.
In the fund's positioning over the past three years, the financial-services weighting has been slowly increasing, based on opportunities for growth. It currently represents about 20% of the portfolio.
Among the other themes that Grammer has pursued has been the growth in the middle class in emerging markets, through companies that have direct exposure to growing consumer demand in these countries
.Grammer, 52, draws on more than two decades of experience in managing Asian equities. A graduate of the University of Toronto, he received a bachelor of applied science in electrical engineering from the University of Toronto in 1984 and applied his engineering skills for two years at a telecommunications firm.
In 1988, Grammer earned an MBA from York University. After receiving his degree, he worked as a commercial lender at Toronto-Dominion Bank for 11 months before moving to Confederation Life as a bank and technology analyst. He received his CFA designation in 1991.
In 1991, after Confederation Life failed, Grammer was hired at the then-named brokerage BBN James Capel (now HSBC), in institutional sales of Japanese and Asian stocks. Then in 1997, he accepted a job offer from Altamira, which was then a client of Grammer's employer.
The job offer was made by Grammer's current colleague Ainsworth, who was then a senior portfolio manager at Altamira. The firm had just brought the management of its Asian funds in-house and valued Grammer's knowledge of the region.
In August 2003, Grammer was again hired by Ainsworth, who by this time was the head of the growth-style equity team at Mackenzie. Under Grammer's tenure, Mackenzie International Growth has a two-year annualized return of 17.8% compared with the median 16.3% return in the International Equity category, as of Sept. 30.
Geographically, the fund is currently weighted approximately 40% in Europe, about 16% in Asia and about 13% in Japan, and is widely diversified across other regions.
"My view is that the European economy is recovering," says Grammer, "and the Asian economy is slowing, but a healthy slowing. A lot of our names in Europe are global and also have good exposure to our theme of the growing middle class, so they've managed to do well in spite of the issues that Europe has faced."
