Why firm backs itself in stock-picking environment

Portfolio manager at award-winning mutual funds company explains why active approach is about to come into its own

Why firm backs itself in stock-picking environment

An award-winning mutual funds company is flexing its active management muscles in anticipation of more market volatility.

Canoe Financial, which last year won Lipper Fund Awards for Best Fund Group Overall, Best Bond Fund Group and Best Energy Equity for 3 and 5 Years, believes that as the bull market moves into its next phase, an active approach will become vital.

The firm began in Calgary in 2008 with the purchase of one closed-end fund and has expanded to include offices in Toronto, Vancouver, Winnipeg, Ottawa and Montreal. In six years, it has reported 167% growth and currently has $4.5 billion assets under management.

Rob Taylor, senior vice president and portfolio manager, said everything the company does oozes active management, a skill-set he believes will become more valuable as we move away from the past eight or nine years of a beta-driven market driven by low rates and central bank liquidity.

He said: “You’ve seen passive strategies do very well during that period because it was a rising tide that lifted all boats.

“I think you are starting to see a little more selectivity in the market, moving into more of a stock-picking environment, and I think that will favour the active manager.”

He added: “Obviously, [clients] are paying a fee to an active manager to manage their money, so our view is that you have to add value to the client to be relevant and to show that value proposition, and I think that’s what we’re demonstrating.”

Taylor manages the flagship $1.3 billion Canoe EIT Income Fund (TSX: EIT.UN) as well as the Canoe Equity Class F (12.60% annual return, alpha 4.7), Canoe Canadian Asset Allocation Class F (9.70%, 3.2) and Canoe North American Monthly Income Class F funds (8.90%, 5.2).

He said that while he would never dismiss the role of a passive strategy within a portfolio, it will be harder for that appoach to create the same rate of return going forward. There is a reason, he said, why an investor needs an active manager to navigate the latter stages of a cycle.

“I don’t want to put down any competitors but I think you are starting to see the initial signs that we are moving into the next phase of the bull market,” he said.

“We’re in this transition phase where volatility is going to pick up, it’s going to be a lot choppier and  there’s going to be a lot more dispersion and we can already see that – picking the right stocks within sectors is way more important.

“One of the risks you saw over the last eight or nine years is that you brought forward a lot of rate of return because a lot of the last 10 years has been driven by multi-expansion of stocks and you just don’t have that same tailwind going forward.

“So you really need to pick the right stocks, find the guys that can grow or are mispriced in the market and I think that is going to be a lot better rewarded in the market. Having a process that can identify these opportunities and take advantage of them, I think is going to be increasingly important. It hasn’t been as important in the past eight or nine years - but it’s coming.”