Lawrence Chin is benefiting from his deep-value, high-conviction approach since taking over the $1.2-billion Mackenzie Cundill Canadian Security 
three years ago. He positioned the fund to capitalize on fear in the marketplace, seeking deeply discounted quality names.
"The market created one of the best buying opportunities that I will probably ever see," says Chin, "and I think the concentration of my best ideas really drove the performance of the fund."
Chin, a vice-president and portfolio manager at the Vancouver-based Mackenzie Cundill division of Mackenzie Financial Corp., has led Mackenzie Cundill Canadian Security since April 1, 2009. Before that, he had served as the co-manager since June 1, 2008.
Under Chin's tenure, Mackenzie Cundill Canadian Security has significantly outpaced its peers. Series A has a 4-star Morningstar Rating for risk-adjusted returns, and its annualized three-year return of 12.3% as of June 30 compares very favourably with the median 4.2% return in the Canadian Focused Equity category.
Mackenzie Cundill Canadian Security typically holds 20 to 40 names, heavily concentrated in the top 15 stocks. Portfolio turnover tends to be low, with stocks usually being held for three to five years.
Carrying on the tradition of the late Peter Cundill, the founder of the team that bears his name, Chin and his colleagues focus on analyzing company balance sheets. They seek to invest in companies that are trading at deep discounts to the intrinsic value of their net assets.
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Back in the late 1990s, during the roaring bull market led by growth stocks, the Cundill team shunned tech stocks because of their pricy valuations. But times have changed, and so stocks that the Mackenzie Cundill managers once wouldn't dream of owning have now become value picks.
More than 25% of the holdings of Mackenzie Cundill Canadian Security are in the technology sector. The largest portion is invested in the Toronto-based components manufacturer Celestica Inc. CLS, which represents 10% of the overall portfolio. Among the other technology holdings are two large-cap U.S. names: Dell Inc. DELL and Microsoft Corp. MSFT.
Chin considers the investment in Celestica in 2008 as one of the "once-in-a lifetime opportunities" to buy names with less risk and a potentially huge payoff. "Celestica had gotten to the level of around $3," he says, "and at that time the company was still making money. But more importantly, they didn't have debt, even in the worst financial crisis that we've ever seen." (This week, Celestica stock was trading in the $7.50 range.
The 23% weight in financial services in Mackenzie Cundill Canadian Security is held mostly in U.S. stocks. Among the fund's top holdings is the revived insurer American International Group Inc. AIG, which was ravaged by the 2008-2009 global financial crisis.
After AIG was bailed out by the U.S. government, new management came in and got rid of the risky assets. "They decreased debt, they increased capital, and today you're seeing that these types of companies have very strong balance sheets," says Chin.
With so much of the bad news in the financial sector already priced into stocks, Chin believes that now is one of the least risky times to buy shares of AIG or U.S. banks. He considers AIG a great example of meeting the two key investment criteria of "valuation and turnaround opportunities."
The Cundill team's research process is global in scope, and this is reflected in the holdings of Mackenzie Cundill Canadian Security. Its 42% weighting in foreign content, well above the median 30% in its fund category, can go as high as 49%.
As head of research at the Cundill organization, Chin sees all of the foreign names and gets a lot of his ideas from this work. He also draws on the experience of nine professional colleagues.
Nearly all of the foreign content is invested in U.S. companies, but the financial challenges in Europe may offer buying opportunities, Chin says. Exposure to foreign currencies, primarily the U.S. dollar, is hedged. But the managers will periodically assess the benefits of hedging compared to what it costs.
A native of Malaysia, Chin, 36, is a graduate of Simon Fraser University, graduating with a bachelor of business administration in finance and accounting in 1999. While a student, he spent a summer working at Philips, Hager & North Investment Management Ltd. and joined Cundill Investment Research Ltd. after earning his degree.
Chin began as an analyst and initially researched U.S. stocks. When the firm launched Mackenzie Cundill American Class in 2003, he was appointed manager.
Along with managing Mackenzie Cundill Canadian Security, Chin is also the lead manager of Mackenzie Cundill Canadian Balanced , which essentially shares the same equity positions. Altogether, he is responsible for about $3 billion of the Mackenzie Cundill team's more than $10 billion in total assets under management.
Chin says the current market environment is creating value buys for the Canadian equity mandate, although not as many as three or four months ago. "When the market goes up and down," he says, "it provides you with the opportunity to buy stocks cheap and to sell stocks expensive."
