Ted Whitehead, manager of the $160-millionManulife Growth Opportunities
, is awaiting a rebound in resources. "We've stuck with materials and energy," he says, "and believe if we do get a massive rally, this is where you're going to make some money."
One of Whitehead's risk management strategies is to place constraints on his holdings vis-à-vis his market benchmark, the BMO Small Cap Blended Index. This index consists of 400 names, of which about 120 are income trusts. Whitehead strives to ensure that, 96% of the time, the fund's return will be within 14 percentage points above or below the benchmark return.
For his roughly 80 individual holdings, Whitehead's upper limit is the index weighting plus three percentage points. For industry sectors, he maintains his holdings between five percentage points above or below the benchmark weightings. The fund can hold up to 30% in foreign content but currently the foreign portion consists only of a 1% weighting in the United States.
Although Whitehead says we've seen a "hiccup" in the resource and infrastructure areas, he anticipates demand to pick up over the next 18 months or so. Hence, Aecon Group Inc. ( ARE/TSX), an infrastructure play, is among the top holdings. The company is involved in roads and hospitals and its order backlog continues to grow.
Another holding that exemplifies Whitehead's investment discipline is Fortress Paper Ltd. ( FTP/TSX), which produces an eclectic mix of paper-based products. According to Whitehead, the company is cheap; it trades around $6 per share, has $3.70 per share in cash and has been delivering on earnings.
Whitehead works with two other managers on the in-house research. With a portfolio turnover of around 35%, the team tends to hang on to a position until things change. Unfortunately, according to Whitehead, in recent events things changed too fast and for the negative, and there was nowhere to go. And since the mandate is not really to be in cash, "we've had to stick it out," he says.
On the quantitative side, one of the things Whitehead and his team have tried to do in this environment is to look for stocks that add a lot of cash, and selling when company fundamentals deteriorate. That strategy worked until companies spent the cash and the stocks went down. "So I don't know if there's really a silver bullet in this type of environment," Whitehead says.
The 46-year-old Whitehead draws on almost 25 years of investment experience. A business commerce graduate from the University of Toronto in 1985, he has held the CFA designation since 1999.
Right after university, Whitehead joined the corporate services department of the Financial Post in Toronto, researching the energy and mining sector. In February 1987, he became a financial advisor, first at Walwyn, Stodgell, Cochran and Murray before moving to RBC Dominion Securities Inc. in 1988.
In November 1990, Whitehead became a trader at Credit Suisse First Boston in Toronto, where he traded Canadian, U.S. and international stocks and bonds.
In October 1997, he joined Elliott & Page as the Canadian equity trader. He became co-manager of the previously named Elliott & Page Growth Opportunities when it was launched in November 1998, and has been lead manager since June 2000. In all, he is responsible for approximately $800 million in total assets under management.
During the 10-year track record of Manulife Growth Opportunities, all under Whitehead's tenure, the fund has an annualized 10.7% return, compared to the median return of 6% for Canadian Small/Mid Cap Equity category, as of Nov. 30. But over the five-year period, the fund has a loss of 0.3%, very close to the median loss of 0.2%. "More recently, we've done better in a bull market than a bear market," Whitehead notes.
Sketching a market graph on a notepad to illustrate his outlook for the future, Whitehead is bullish. "It wouldn't surprise me if we see a 50% to 60% rally, so back to 12,000 (on the S&P/TSX Composite Index)," he says. "We may re-test or go a little lower in 2010, then maybe we'll do something more elongated for five years."
