Under new manager Gilbert (Gil) Lamothe, the struggling $1.2-billionClarington Canadian Dividend A will hold fewer names, and hopefully much better performing ones.
Lamothe, who assumed responsibility for the Morningstar 1-star rated fund on March 31, aims to build on his track record at Industrial Alliance Investment Management Inc., for which he has managed the Morningstar 5-star ratedIA Ecoflex Dividends since November 2002. One of the top priorities for Lamothe, who replaced Halifax-based SEAMARK Asset Management Ltd., is to pare down the number of holdings in the Clarington fund. He inherited about 85 names, and his intention is to hold only about 40 or so.
Income trusts, previously absent under SEAMARK, will form a small part of Lamothe's asset mix. "I understand they [SEAMARK] didn't do any income trusts and there will be about 5% in income trusts to cover off the dividend yield and to get exposure to different sectors," says Lamothe.
As a bottom-up manager who seeks growth at a reasonable price, Lamothe adheres to a "rigorous" disciplined approach. His focus is on dividend-paying mid- and large-capitalization stocks with strong growth prospects.
Because of his risk and liquidity constraints, Lamothe favours companies with market capitalizations of $1 billion or more. Currently, his universe of potential Canadian stock and income trust picks consists of 185 names.
Though industry-sector allocation plays a role for Lamothe, he spends most of his time on stock analysis, using a discounted-cash-flow model that he developed in-house with another colleague.
His objective is for the portfolio to exceed the dividend yield of the benchmark S&P/TSX 60 Index by one percentage point, while also producing capital appreciation. Of the current 43 names in the fund, 18 are not included in the index.
Then comes the hard part -- where most of the value is added, says Lamothe. Once the portfolio's construction is "nailed down," he spends about 70% of his time on the "art and patience" aspect of the fund. It's this qualitative aspect of looking beyond the hard numbers that drives the performance of the fund, he says.
When it comes to sectors, Lamothe says it's fortunate the heavyweight financial services companies are part of the fund's mandate, since they offset his bullishness on energy and materials. Because of his macroeconomic outlook, he feels compelled to be exposed to these two cyclical sectors, despite their generally lower dividend yields.
Lamothe's exposure to Canadian technology stocks is zero because there are no dividend-paying companies in this sector that meet his criteria. That's where the foreign content portion of his portfolio comes in.
Clarington Canadian Dividend's neutral foreign allocation has been set at 15%, and among the stocks Lamothe currently favours are fairly valued, dividend-paying companies in the U.S. technology sector. However, the fund will hold less non-Canadian exposure than the 27.5% foreign equity position that he inherited.
A patient investor, the buy-and-hold Lamothe expects that his portfolio turnover rate will be low. "I'd like to see 15%," he says, adding: "It's still going to be low for sure."
Lamothe, 43, took an indirect route to becoming a money manager. After frequently reading about junior mining stocks as a mineral exploration technologist, he discovered early on that he wanted to be a portfolio manager -- "and it only took me 20 years to do that."
In 1989, Lamothe graduated with an honours bachelor's degree in commerce from Laurentian University in Sudbury, Ont. He then joined Toronto-based Financial Models Co. (FMC), a software developer, as a client services representative.
From 1993 to 1994, he worked as an independent consultant on FMC's systems. Canada Life Investment Management Inc., one of his clients, subsequently hired him full-time as a senior portfolio systems administrator.
In 1996, Lamothe received the CFA designation and became an investment analyst. Canada Life then spun out a private firm partially held by the managers, named Indago Capital Management Inc., where Lamothe worked as a senior investment analyst of Canadian equities.
Then in 1999, Lamothe joined National Life Assurance Co. of Canada as an investment analyst. He became a portfolio manager of Canadian equities there in 2000 before moving to Industrial Alliance in a similar role.
The newly assigned Clarington mandate boosts Lamothe's total assets under management to close to $2 billion. While responsible for the portfolio decisions, he will tap into the expertise of 17 Industrial Alliance investment professionals across Canada.
