Quality and value are the namesake investment criteria of QV Investors Inc., and they are cornerstones of the investment philosophy of its founder, president and chief investment officer Leigh Pullen.
"Our mantra here," says Pullen, "is we're interested in investing in enduring and sustainable businesses, led by capable and honest people. Behind that follows an emphasis on valuation, and behind that follows commitment to being a long-term investor in businesses that we like."
Calgary-based QV Investors is a portfolio sub-advisor to three mutual fund companies, with the common theme being small- and mid-cap equities. Its funds managed includeEthical Special Equity 
,IA Clarington Canadian Small Cap A andCI Can-Am Small Cap Corporate Class . All three are Morningstar Fund Analyst Picks.
While Pullen declines to take credit for any direct management of these mandates, all investment decisions must be approved by a five-member investment committee that includes him.
Since launching the then-named QVGD Investors Inc. in 1996, Pullen has seen the firm's assets grow to almost $2 billion today. (The "GD" in the original company name stood for "growth and discipline," but these two letters were dropped in 2007 to keep the company name short and simple.)
Pullen's firm has had its ups and downs. He says it grew to $400 million under management by the year 2000, and then had a "very hard tumble" when assets collapsed to about $150 million.
"Two things went wrong," says Pullen. "We did not participate in the dot-com mania and we over-diversified in the number of accounts that we did have." However, they never abandoned the securities-selection and risk-management process and the commitment to value, he adds.
QV Investors' concentrated mandates have a limit of between 25 and 40 names in any one portfolio. "I've made the mistake in my life," says Pullen, "where I've added far too many names in the portfolio and therefore you lose the focus."
Pullen says the firm's concentration discipline forces the portfolio managers to be looking at the weakest holdings and the stronger holdings, and making the decision on whether to own more of one company or to eliminate another. The mandates are typically diversified by industry, with a limit of 25% in any one sector.
To evaluate securities, the managers use fundamental criteria such as valuation ratios, including price-to-earnings and cash-flow-to-debt, among others. Growth is considered the second component to risk analytics, so they look at historical return on equity and expected growth rates.
Many of the names in the portfolios date back to the days before QV existed and when Pullen was directly managing the money. Mullen Group Income Fund ( MTL/TSX), Leon's Furniture Ltd. ( LNF/TSX) and Canadian Western Bank ( CWB/TSX) are among his long-standing holdings.
Pullen points to the holding of Leon's Furniture, which investors may expect to be having some heavy weather sailing here in a consumer-led recession. "The business has no debt," he says, "a remarkable achievement in the retail sector, so they're not taking risks."
Leon's management history, balance sheet, valuations and a business that is growing nicely or consistently, meet Pullen's key stock-picking criteria. "Valuation is inherent in what we do," he says, adding that investing in well built franchises run by capable people will reduce portfolio volatility.
Good dividend flow will also help mitigate volatility, Pullen says. Accordingly, QV's small-cap mandate currently has a dividend yield of 3%.
Pullen, 64, has four decades of investment experience. After spending two years pursuing social and philosophical studies at the University of Toronto, he left academia in 1966 to work as a market commentator at the Toronto Stock Exchange. A year later, seeking potential career opportunities in the technology area, he joined IBM Canada Ltd. Two years later, he was drawn to the investment world.
In 1969, he left IBM to join National Trust Co. as an analyst. He earned his CFA designation and eventually became manager of pension fund investments. Then in 1977, he moved to Calgary to become a partner, analyst and portfolio manager at Mawer Investment Management. He remained there until 1996, when he left to found his own firm.
In today's market, poised for opportunities, Pullen says they still take a very defensive posture and therefore tend to have a heavy commitment in staples, utilities and telecommunications companies.
"There's absolutely no question that our style, our defensive qualities and the general quality of the holdings," says Pullen, "really comes to show its prowess and strength in down markets. I believe that when the bloom comes off the rose -- when exciting stocks, if you will, become overvalued -- the money ultimately recycles to better value and income-paying securities."
