An unruffled Norman Fidel, lead manager ofMackenzie Universal Health Sciences Capital Class, was greeted by masked airport personnel during his recent visit to Toronto. He's not one to be spooked easily, whether by the recent SARS scare or by the volatile biotechnology stocks to which he has been increasingly exposing his fund.
"We're getting closer to the period where we're going to have strong economic growth, so we're building biotech back up where the valuations have come down," says Fidel, a senior vice-president of New-York based Alliance Capital Management Corp. "The rest of health care, regarded as more defensive, typically has its best period of outperformance when economic growth is moderate to slow." Fidel has been managing the $52-million Mackenzie Universal Health Sciences Capital Class since its inception in October 2000. Before that, starting in January 2000, he had been manager of the "virtually identical" trust version of Mackenzie Universal Health Sciences, which was merged into its capital class counterpart in October 2000. He also oversees 12 U.S.-based funds, with US$2.3-billion in total assets.
Fidel's investment process begins with a top-down analysis of the four main segments of the health sector, to decide where he wants to place the most emphasis. His decisions will also reflect the relative weightings in the health-care indexes. Recently, about 46% of the fund was in drug companies, 23% in medical services, 16% in medical products, and 14% in biotechnology. Rounding out the portfolio was a cash position of less than 2%, which is typical for Fidel.
His next step is to look for specific names. About 60% of Mackenzie Universal Health Sciences is usually invested in large companies with a minimum market capitalization of US$10 billion, with the remainder held in mid-cap companies. At times, he will also hold positions in small-cap stocks. His current holdings are 80% in U.S.-based companies.
Over the past two years, during which the fund has been a second-quartile performer, Fidel has been emphasizing "real companies that have products already on the market, not just hopes." Reflecting that approach, 85% to 90% of the portfolio is invested in companies that have earnings, while 10% to 15% is invested in companies that are in the growing stage, mostly biotech in nature.
Fidel doesn't adhere to a quantitative cut-off point in evaluating a company. He bases his stock-picking decisions on two premises: What he thinks is going to happen versus the consensus, and how he thinks the stock value is relative to its growth. A company's potential is judged in terms of a 12- to 18-month time frame.
The Mackenzie fund typically holds 35 to 45 names, with an average weighting of 2.5%. The top 10 holdings normally make up 40% to 45% of the fund's assets. The largest recent holding is 10% in the U.S.-based pharmaceuticals giant Pfizer Inc. ( PFE/NYSE) Pfizer is the only stock whose weighting exceeds 6%, the threshold at which Fidel usually starts to trim a position.
Regardless of a stock's weighting, he will also sell if there are deteriorating fundamentals or excessive expectations. But he's a long-term investor, as reflected in the Mackenzie fund's low portfolio turnover of 19.7% last year.
Fittingly for his role, the 57-year-old Fidel has had a long-time interest in science as well as investment management. He graduated from Babson College in Wellesley, Mass., with a bachelor of science in 1967. He received an MBA from New York University in 1969.
After receiving his business degree, he joined Irving Trust Co. (now part of Bank of New York) as an analyst. Graduating as student number 43 in the newly launched chartered financial analyst program, he was one of the first money managers to obtain the designation in 1974.
In 1980, he left Irving Trust to join Eberstadt Asset Management as an analyst. Alliance acquired Eberstadt in 1985, and he moved in 1988 from an analyst position to managing the firm's offshore health-care fund.
Working closely with a team of six analysts and specialists, Fidel taps into a wider network of close to 180 Alliance Capital equity analysts globally. He views himself as an analyst who generates ideas on how to invest in health care.
Fidel is confident that there's a healthy outlook for health-care stocks. "You don't have to worry about demand for health care," he says. "It's going to accelerate. The baby boomers are in their late 50s and they are going to get sick now."
