Michael B. Decter admits that next year it could be harder to make up the rest of the losses incurred in 2008. "But if the economy shows some strength in 2010, another 20%-plus year is possible. I've never seen a recession before with copper prices at US$3 a pound. Normally, copper would be 80 cents," observes Decter, manager of the $24.4-millionRedwood Diversified Equity.
"What's different this time is China and India. They're providing a floor for oil and base metals prices," says Decter, 57, who is also president and CEO of Toronto-based Lawrence Decter Investment Counsel Inc.
A bottom-up stock picker, Decter is a value investor, but quick to note that he adapts to market developments. "There are a lot of players who are not value investors," he says. "So we've changed our sell discipline. When something gets fully valued, we'll sell some of it. But not all."
For instance, consider HudBay Minerals Inc. ( HBM). The Manitoba-based producer of copper, zinc and gold has a solid balance sheet and has about $800 million in cash. "We started buying when it was selling pretty much for the cash. So you got the company for nothing."
Decter had owned the mid-cap stock previously, when it ran from $3 up to $29 a share in 2007. After trimming the position in 2008, he got back in again early this year, paying an average price of $8. Today, the stock is $13.80.
"Some start out as value stocks, and turn into growth stories," says Decter. "We bought this at a good price, and now it's not undervalued. It's become a growth story, but should we abandon it?"
Moving in and out of positions has generally paid off for Decter when markets were going up. In 2008, however, the fund lost 44.6%, performing slightly worse than the median 43.3% loss in the Canadian Small/Mid Cap Equity category.
With this year's rebound, the fund outperformed. It returned 53.7% in the 12 months ended Nov. 30, better than the 46.6% median return. Over the three- and five-year periods, the 4-star rated fund has produced top-quartile annualized returns of 2% and 8.8% respectively.
Decter, who usually owns about 40 names, limits single holdings to about 7% of fund assets. Portfolio turnover was high, at 388.4% in 2008. However, that is attributable to last year's intense market turmoil and a switch to more defensive holdings. In less volatile markets, portfolio turnover tends to be lower, such as in 2005 when it was 79.8%.
A Winnipeg native, Decter came to investment management by an unconventional route. In 1974, after graduating from Harvard College with a bachelor of arts in economics, he pursued a career as a senior manager in two provincial governments and then as a health-care consultant. Apart from serving five years as cabinet secretary in the Manitoba government, he also worked for three years as Ontario's Deputy Minister of Health.
In 1998, Decter used his decade-long personal experience in managing investments to write a book, Million Dollar Strategy. That brought him to the attention of Jack Lawrence, a Bay Street veteran who invited Decter to join Lawrence & Co.
Decter passed an informal test when he had lunch with Lawrence and Ira Gluskin, a well known professional money manager at Gluskin Sheff. Both were asked to supply a list of their five best stock ideas. "Three of the five were the same, and Jack hadn't heard of any of them," laughs Decter. "If I was picking some of the same names as Ira, Jack figured I was probably okay."
Later, the two formed Lawrence Decter Investment Counsel Inc. "My interest was in investment counselling. His interest was in private equity. But I did both for the first four or five years."
As a result, Decter turned his investing hobby into his new career, and made health-care management an avocation. Decter is active as a volunteer chair of several boards, such as home-care provider St. Elizabeth Healthcare, and the Wait Times Data Certification Council of Ontario.
When the investment counselling business became large enough, Decter began to buy out Lawrence, and assumed ownership in 2007. Today, Decter and an eight-person team oversee about $400 million in assets under management, most of which is in segregated accounts. (The minimum account size is $250,000.)
Besides running the Canadian small/mid cap fund, Decter also manages the $14.3 millionRedwood Diversified Income. Since it is designed to generate regular monthly distributions, its portfolio is more conservative.
Among the core positions is Cineplex Galaxy Income Fund ( CGX.UN), the dominant film exhibitor in Canada. "In bad times, people go to movies," says Decter, noting that he added to the holding on weakness last winter. "Movies are distracting, and don't cost a lot of money."
While Cineplex Galaxy's unit price is not expected to climb dramatically, it has an attractive 7% distribution. "And it's growing," says Decter.
