Despite the frustrations he has experienced in the stock market, Alan Radlo is upbeat about constructing a new equity portfolio from scratch. "We want to put together those stocks that relative to the market, or on an absolute basis, appear to represent good value," says the co-manager of Fidelity NorthStar. Launched on Oct. 31, the fund will invest primarily in North America but will be free to invest in any country, any sector and in companies of any size.
"I am happy about the new fund because I am not so index-oriented," says Radlo. "If you find companies that are in unique positions, whether it be competitively, from a cost or technological advantage, they can build value and raise dividends, or buy back stock, or be taken over." The Boston-based Radlo will co-manage the fund with Joel Tillinghast, who shares the same intensity for bottom-up fundamental stock research. One of Fidelity's brightest stars, Tillinghast is best known in the U.S. as the lead manager of Fidelity Low-Priced Stock, a US$15.5-billion fund that has garnered a five-star Morningstar rating.
Radlo's star shines in his own right, particularly in Canada. He continues to manage the equity portion of the Morningstar five-star ratedFidelity Canadian Asset Allocation, as he has done since December 1994, and he remains manager ofFidelity Canadian Growth Company, a four-star fund that he has managed since its inception in July 1994.
Radlo's accomplishments also include managing the four-star ratedFidelity True North since November 1996. But in October he relinquished the fund to Stephen Binder to free up the time needed for Fidelity NorthStar.
Despite the stock market rebound since early October, Radlo remains very cautious. "The market continues to be commoditized due to the use of derivatives securities by a lot of hedge funds and major investment players," he says. "What companies do in the short term has nothing to do with the long term in their actions in the market."
Seeing stocks whip-sawed for no apparent reason is one of the most stressful aspects of the market, says Radlo. "Many people own stocks that may be wrong on the fundamentals, but because they owned them in the right week, they look like heroes," he says. "Or you could be correct in owning a stock and the fundamentals come through, but it doesn't move."
That doesn't mean there aren't good stocks out there, says Radlo. "If they continue to grow, and the market goes against me, I will still get that value realized eventually. One year, we might underperform. But we may be in favour the following year."
Boston-born and raised, the 46-year-old Radlo has always been interested in consumer and economic trends. "I had a very inquisitive mind as to companies that were growing," he says, recalling how he used to study which airlines or cars were most popular.
Although he enrolled at Brandeis University in Waltham, Mass., with the intention of studying medicine, he realized that wasn't his calling and obtained a bachelor of arts in economics in 1979. He continued his studies at the University of Massachusetts in Amherst where he completed an MBA in 1981.
Radlo began working on the treasury desk at the Bank of Boston. In 1983 and 1984, he managed a small-capitalization fund during the go-go days when technology stocks were coming to the fore. He joined Fidelity Management & Research Co. in 1985 as a member of the international group, managing U.S. equities for Canadian institutional clients.
From 1987 to 1990, Radlo managed the Canadian equity portion of Fidelity Capital Builder and Fidelity Capital Preservation (nowFidelity Canadian Bond). From 1990 to 1994, he ran Fidelity OTC Portfolio for U.S. investors. Since then, he has been managing Canadian funds.
Radlo tends to runs equity portfolios of about 90-110 holdings. But since the older funds are benchmarked against specific indexes, he adjusts those portfolios accordingly. "You have to put together a portfolio of stocks with the index in the background and put the best companies in there." Seeking to reduce risk, and preserve capital, he keeps positions to a maximum 3% of the fund's assets. He normally turns over his portfolios about once a year.
Though value-conscious, Radlo is always keen on companies with a growth element. "Anyone who is investing is a value manager because if you are buying a growth stock you want to buy it at a price-earnings-to-growth discount, or a cash-flow discount," he says. "Just because a company is a value stock, doesn't mean it can't be overpriced. And just because a company is a growth stock, doesn't mean it can't be underpriced."
