A growth investor, Glenn Paradis seeks companies that have strong management and are dominant in their industry. "If you have a solid management team, you should be able to build a business model that is superior to your competitors," says Paradis, 37, a vice-president at Toronto-based AEGON Capital Management Inc., whose responsibilities include managing the $64-millionTransamerica IMS Dividend.
He also prefers firms that can maintain their profitability through good times and bad. "Managers realize that shareholders want to ensure their money is being appropriately re-invested in the business, and returned to them either through dividends or share buy-backs." In addition, Paradis is looking for a catalyst that will spark interest in the company, such as a new product cycle or changes in the industry. "It may be valued attractively," he says. "But if there's no catalyst, you will maintain that valuation for some time."
Paradis is also sensitive to risk-reward trade-offs. As a rule of thumb, the payoff for a stock must be three times what he is prepared to risk. That is, while a $10 stock could have a 10% downside, he's expecting a 30% gain. Depending on the business, he uses valuation measures such as price-to-cash-flow or enterprise value to earnings before interest, taxes, depreciation and amortization.
Harrah's Entertainment Inc. ( HET/NYSE), which is among his foreign holdings, is representative of his stock-selection discipline. A major U.S. casino operator, it had traded down recently to US$31, or 5.7 times cash flow, a far cry from its historic high of 10 times.
"Here we have a good business, very strong management, and reasonably good growth opportunities," says Paradis. "In better times, trading at normalized cash flow multiples, we see a $48 stock, or an upside of 45%."
A native of Sarnia, Ont., Paradis went directly into the financial services industry after he graduated from University of Windsor in 1989 with a bachelor of arts in economics. His first job was on the trading desk in the bond department of Merrill Lynch. In 1992, he joined the external pension fund group at RT Capital Management Inc. in Toronto, where he sold trading and currency services. The next year he moved into equity management for high net worth and small pension corporate accounts.
In 1997, Paradis joined TD Quantitative Capital. As vice-president, he was in charge of the structured product group that oversaw about $1 billion in assets, held primarily at TD Trust. In January 1998, he was retained by Acker Finley Asset Management Inc., where he assisted in launching its mutual funds and briefly co-managedQSA Canadian Equity.
In September of that year, he helped start the equity investment management group at Transamerica Life Insurance Co. of Canada. That group was spun out in March 2002 as AEGON Capital Management, which is majority controlled by AEGON Canada Inc., a subsidiary of Netherlands-based AEGON NV. All told, the group runs about $6 billion in assets that are held mostly in segregated funds and corporate assets.
Paradis's job includes developing new products on the mutual fund and pension fund side, though he admits it is a tough environment to sell into. As a result, he has taken a more conservative approach. "You don't want to swing for the fences. You want to defend your positions and ensure you get a decent return," he says.
Paradis tends to own about 35 companies in the $2.1-millionimaxx Canadian Equity Growth, a mutual fund that he has run since its inception in June 2002. The maximum holding in any one stock currently is 5%, and he would not go beyond 6%. His portfolio turnover is normally around 30% a year.
In the $8.9-millionimaxx Canadian Fixed Pay, Paradis's portfolio is more diversified, with about 40 holdings. Introduced in July 2002, the fund is a Canadian income-trust fund that is geared to provide a steady income stream.
Paradis has struggled over most of the past several years in a hostile environment for growth managers. Transamerica IMS Dividend, which he has managed since August 2000, has been a fourth-quartile performer over the past three years, mostly under his tenure.
But over more recent periods, his rankings have improved. The dividend fund is top-quartile for the past 12 months, after having previously lagged. Meanwhile, the two new imaxx funds are each off to good starts, performing in the top quartile in their categories in the six months ended April 30.
While it was difficult to find reasonably priced growth stocks in the late 1990s, Paradis is hopeful these days, maintaining that the pickings have improved. "There have been some good opportunities as some of these companies have been beaten down to levels we have not seen in a long, long time."
