Remaking the house that Peter Cundill built

Morningstar's manager-research team has placed under review the two Mackenzie Cundill funds currently under coverage: the flagship Mackenzie Cundill Value, which competes in the Global Equity category, and Mackenzie Cundill Canadian Security, which is in the Canadian Focused Equity category.

This follows a March 24 conference call during which Mackenzie officials told Morningstar analysts that the changes go far beyond hiring new team leaders. Under new management, the Mackenzie Cundill team will implement extensive risk-management and portfolio-construction processes. Expertise in these areas was lacking at the Cundill team, Mackenzie officials say.

As a result, Mackenzie Cundill portfolios will soon start to look very different from how they've been managed historically. The managers will invest in a full range of value stocks, including core and relative-value names, depending on where they believe they have the best prospects for risk-adjusted returns.

Also relegated to history is the Mackenzie Cundill team's strictly bottom-up stock selection based on deep-value criteria, which resulted in big bets on countries, industry sectors or individual companies.

The revamped Mackenzie Cundill funds are to hold roughly 40 to 60 stocks, as distinct from the previously more concentrated portfolios that consisted typically of 25 to 30 stocks. Company officials say investors will no longer see 9-10% of a Cundill portfolio held in a single name. As well, country or sector weightings will be reined in so that they will vary by no more than 20 percentage points from their market benchmarks.

The remaking of Mackenzie Cundill will be the responsibility of recently hired Jonathan Norwood and Richard Wong, whom Mackenzie confirmed publicly on March 24 as the team's new co-leaders. Both men, who have not previously worked together, are value-style managers whom Mackenzie recruited from institutional money-management firms.

"The Cundill boutique will benefit from the added portfolio construction skill-sets of these portfolio managers who have proven expertise in global value investing with institutional asset managers," Tony Elavia, chief investment officer of Mackenzie Investments, said in a press release announcing the changes.

Norwood, whose expertise is mainly in the U.S. market, was previously a U.S. equity manager with Halifax-based Louisbourg Investments. Wong was previously a senior equity manager with Lincluden Investment Management of Mississauga, Ont., where he served as a lead manager for international equity and U.S. equity mandates.

The duo replace long-time Cundill team members Andrew Massie, who joined the former Cundill Investment Management Research Ltd. as an analyst in 1993, and Lawrence Chin, who joined as an analyst in 1999. Mackenzie said Massie will be retiring, effective Aug. 31, and Chin is resigning effective April 30 to pursue a career opportunity outside the mutual-fund industry.

Both Massie and Chin were protégés of founder Peter Cundill, who because of failing health stepped down from the firm three years after the sale to Mackenzie. Cundill died in January 2011, leaving a legacy of benchmark-beating returns that the next generation of managers was unable to sustain.

Along with bringing a more risk-averse discipline to bear, the appointments of Norwood and Wong change the home base for the Cundill operation. Unlike their Vancouver-based predecessors, the new co-leaders will work at Mackenzie's head office in Toronto.

Their Toronto location will facilitate close interaction with CIO Elavia and with William Aldridge of Mackenzie's all-cap value team, who will contribute domestic stock-selection ideas to the Cundill funds. But for now, it will leave Cundill's other portfolio managers and analysts working four provinces and three time zones away.

The Mackenzie Cundill team is currently responsible for five distinct investment mandates, of which three have both mutual-fund trust and corporate-class versions. Norwood and Wong will co-manage Mackenzie Cundill Value, while Norwood will manage Mackenzie Cundill U.S. Class. Both will join the team managing Mackenzie Cundill Canadian Security and Mackenzie Canadian Balanced.

A fifth Cundill mandate -- Mackenzie Cundill Recovery, which is in the Global Small/Mid Cap Equity category -- continues to be managed under a sub-advisory arrangement by London-based James Morton, who is chief investment officer of Santa Lucia Asset Management Ltd.

Also affected by the remaking of Mackenzie Cundill are the Symmetry Portfolios of funds of funds, of which Mackenzie Cundill funds are components, and several multi-manager funds, including Mackenzie Canadian Concentrated Equity and Mackenzie Global Concentrated Equity.