Cecilia Mo didn't waste any time taking advantage of the free hand she was given as the new manager of the $1.9-billion Dynamic Value Fund of Canada 
. Within a month, she slashed the fund's almost 70% exposure to commodity-based companies to roughly half that amount.
"I want to return the portfolio back to really basic value investing," says Mo, "instead of making a very concentrated bet on commodities. I would rather have a more risk-adjusted return for the portfolio and less of a sector call."
Mo is a vice-president and portfolio manager at the newly named GCIC Ltd., formerly Goodman & Co. Investment Counsel Ltd., a subsidiary of DundeeWealth Inc. Previously an employee at Toronto-based Fidelity Investments Canada ULC for more than a decade, she took over the Dynamic mandate on Oct. 11. The award-winning fund was formerly managed by David Taylor, who left the company.
Drawing on her strict discipline and risk parameters, Mo is aiming for a smoother ride for the fund's unitholders. "I'm trying to position the fund to have better consistency, to have better downside protection," she says. "So in a down market, hopefully it won't go down as much as the market, and in an up market, you can catch the upside."
Other mandates under Mo's umbrella include Dynamic Value Balanced, Dynamic Dividend Value, and a new fund, Dynamic Dividend Advantage, which was launched on Dec. 12. Mo is responsible for approximately $6 billion in total assets under management.
A key attraction for Mo in making her move to Dynamic was the freedom given to portfolio managers. "You can do whatever you want, there is no benchmark," she says. "All I care about is whether this stock is a good stock, whether it can provide risk-adjusted returns for my shareholders."
As well, Mo welcomed the opportunity to build her own team. Two analysts now work exclusively with her. She also taps into the shared philosophy of GCIC's value team of four portfolio managers and other analysts.
During the transition process for Dynamic Value Fund of Canada, Mo significantly increased the number of stocks. The former manager's portfolio was concentrated in 23 holdings and heavily weighted in energy and mining. Mo's 40 to 50 names are diversified broadly across sectors and industries.
To limit company-specific risk, Mo will usually limit her individual stock holdings to 6% of the overall portfolio. She may hold up to 20% or more of Dynamic Value Fund of Canada in cash to protect capital or as a reserve for buying opportunities. Mo sets no time horizon for owning a stock, and her portfolio turnover will depend on market conditions and stock-specific considerations. Her top 10 core holdings will generally remain quite stable. She will divest holdings when she considers them to have become overvalued or when there is a change of fundamentals, when a better investment opportunity emerges, or when a research error has occurred.
Dynamic Value Fund of Canada, which invests in large, mid-cap and small-cap companies, currently holds about 55% in Canadian equities and 29% in the United States. Investing in the U.S. enables Mo to take advantage of a much wider selection of value-investing opportunities in the consumer, industrial and health-care sectors. Overall, Mo's bottom-up stock selection has resulted in materials currently being the heaviest weighted sector at 19%, followed by energy at 15% and financial services at 14%.
A Hong Kong native, Mo, 41, is a graduate of the University of British Columbia with a BA in business. Upon graduation in 1994, she joined Neuberger Berman, an institutional money manager in New York, working for two and a half years as beverage, hotel and gaming analyst. Pursuing further studies, she earned an MBA from the University of Pennsylvania's Wharton School in 2000.
Mo joined Fidelity in May 2000 as an analyst. In 2004, she was working with Canadian equity funds and in May 2005 became lead manager of Fidelity Income Trust. In January 2007, she was appointed co-manager of Fidelity NorthStar, which is in the Global Small/Mid Cap Equity category.
Mo credits the training that she received at the Fidelity organization as "one of the best in the world" in terms of risk management and taking a disciplined approach to different sectors and industries.
Her definition of value investing isn't based on a numbers-driven style box. For Mo, a value situation could involve a company that has great assets, but whose management is performing poorly. She cites as an example Research in Motion Ltd. RIM.
Value opportunities may also emerge when a great business is going through a cyclical downturn, says Mo, citing auto-parts maker Magna International Inc. MG. Or, a company's assets may be unrecognized by the market. Mo's example of such a situation is her current top holding, Tahoe Resources Inc. THO.
From a quantitative perspective, Mo doesn't mind buying companies that have "really terrible balance sheets," as long as she thinks they'll survive. She considers the strategy of selecting cheap stocks rather than value traps as a judgment call that comes with experience.
