Rory Flynn, co-manager ofAGF International Stock Class 
, is counting on selected financial services companies to be big winners over the next decade. He headed into the current quarter holding roughly 47% in financials, with an emphasis on companies serving retail customers.
"Retail financials, whether it's property and casualty insurance or retail banking, typically have some sort of franchise and robustness," says Flynn. "The customer will come back to them, either by force, or because it works for both of them."
As a "wonderful illustration" from a recent trip to Montreal, Flynn recounted a conversation with an investor who was complaining about a letter from her local Canadian bank. The letter referred to tough times and a changing world, by way of giving the customer notice that the interest rate payable on her loan was being hiked by a full percentage point.
"So you complain, you moan, and then you pay it," says Flynn, "because you don't particularly have a choice. (As a portfolio manager), you know the company is robust, it will survive, even if they get it wrong for a while."
Flynn, who is with Dublin-based AGF International Advisors Co. Ltd., is just wrapping up a six-month stay in Canada, working at the Toronto head office of the AGF organization. He has co-managed the 4-star rated AGF International Stock, together with veteran John Arnold, since June 2002.
The two have worked together since Flynn joined Arnold's team in 1993. Flynn has also co-managedAGF European Equity Class with Arnold since the fund was launched in April 1994.
The Dublin subsidiary of Toronto-based AGF Management Ltd. is responsible for around $8.6 billion in total assets, of which approximately 56% is held in mutual funds offered in Canada.
A defining characteristic of how AGF International Advisors manages money is its "30-30-30" discipline. To be considered for purchase, a stock's current price must be at least 30% below its high over the past 18 months, its price-earnings ratio must be at least 30% below the market P/E, and its dividend yield must be 30% above the market yield.
By using these quantitative screens, and through extensive research and meetings with the management of the companies, Flynn believes that he and his colleagues "do the risk management at the beginning."
The firm doesn't believe in highly mathematical models or "sexy financial theories, such as multiple beta models," says Flynn. "So we generally believe, understand the basics and potentially keep quite a simple model in our head or on paper."
Normally, the portfolios managed or co-managed by Flynn are concentrated in between 40 and 70 names. The firm did toy with the idea of setting a maximum sector ceiling but prefer to learn from experience.
"If financials had worked out really horrifically in 2008 and 2009," says Flynn, "instead of just saying, oh, financials are bad, or a maximum of 50% is bad, let's think it through in that situation." The reward for not following the index is you should do better over the longer period, he adds.
Looking ahead, with "interesting value out there," the international mandate is fully invested. "If we look at a mixture of things," says Flynn, "what jumps out is China is not particularly tempting, the States and Canada are the same, and Europe stands out as being interestingly valued with big dividend yields."
Since AGF International Advisors follows a buy-and-hold strategy of investing in out-of-favour companies, the international stock mandate has a very low portfolio turnover. On average, according to Flynn, turnover is around 7% annually.
The sell discipline is based on a target selling price over a two-year period. But other variables, such as diminishing profits or a dip in dividends, may also trigger selling. As well, a stock holding will be trimmed if it exceeds a 10% weighting in the overall portfolio.
Flynn, 44, received a bachelor of commerce degree from University College Cork, Ireland, in 1988. He then completed his studies for a master's degree at University College Dublin.
While pursuing academic life at UCD, Flynn met a visiting professor from the University of California, Berkeley, a "leading light in financial research" who took him on as a research assistant for two years. After working as a lecturer in Ireland at the University of Limerick, Flynn left the academic world to join AGF in Dublin in 1992.
Cultivating a hire-and-hold philosophy, the firm hasn't lost a single one of its 10-member team in 10 years. The approach is to hire fresh university graduates with no experience, then train them as portfolio managers over a five-year period. "So it appears to be a little bit expensive," says Flynn, "but the gain you get is a lot of consistency and knowledge of the stocks."
