67 WALL STREET, New York - May 6, 2014 - The Wall Street Transcript has just published its Investing Strategies Report for serious investors. This special feature contains expert industry commentary through in-depth interviews with highly experienced, professional Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Small Cap Investing - Value Investment - Investment Risk Management Strategies - Long-Term Investing - High-Quality Companies - Investing in Agriculture - International Microcap Investing - Low-Volatility Investing
Companies include: Royal Bank of Canada (RY), The Bank Of Nova Scotia (BNS), Suncor Energy Inc. (SU), Canadian Natural Resources Lim (CNQ), Manulife Financial Corporation (MFC), Sun Life Financial Inc. (SLF) and many others.
In the following excerpt from the Investing Strategies Report, an experienced portfolio manager specializing in Canadian value stocks discusses his investing methodology and top stock picks for investors:
TWST: I'd like to start with an overview of the Canadian Value Fund and its investment philosophy and strategy.
Mr. Chopra: Let me highlight the philosophy, because that's probably helpful. What we're trying to do is seek attractive value investment opportunities across all sectors and market caps. We generally focus on the Canadian space, although we also hold some U.S securities. It is the TD Canadian Value Fund. So for us, we use fundamental bottom-up analysis and evaluate multiple pricing metrics when we look at different investments. We overlay it with our macroeconomic thoughts as well as industry views. We tend to maintain a mid- to large-cap bias.
The fund is roughly $2.5 billion in size, though we are open to select small-cap opportunities, and we generally have a preference for dividend-paying stocks. That's simply because when a company understands it has a quarterly cash outflow, they tend to evaluate opportunities differently as opposed to having total control of all the cash flow. And the whole point of our philosophy is to maintain a conservatively valued overall portfolio.
TWST: Do you have preferences for certain sectors and industries at this particular time? I noticed that in your top 10 holdings there were a lot of banks and energy companies. Is that typical?
Mr. Chopra: It might be helpful if I talk about the portfolio-construction process, and that may tie into the top 10 holdings. We look at our portfolio as being comprised of three categories. The first category is we're looking for long-term generators of potential shareholder returns. That would be, let's say, a company's financials. I'll highlight one here. Let's say the Royal Bank of Canada (RY); here's a company where you look at forward earnings. You're getting it around 11 times 2015 earnings. But the ROE of the banks in Canada tends to be in the mid- to high-teens range. So you're getting that combination of modest p/e and higher ROE. That's something that we would look to hold over the longer term. That's in a category we'd call long-term generators of potential shareholder returns.
The second category our investments tend to fall in is out-of-favor opportunities. Those will be quality names or sectors even though they are out of favor due to the economic cycle, inventory issues or other resolvable challenges. And here the key is resolvable challenges. We're looking for temporary problems that can be overcome as opposed to permanent or structural issues.
Then the final category, and this tends to be the smallest part by far, and it only depends on a few opportunity sets, and that would be our special-situations area. That tends to either be smaller-cap stocks that tend to be underfollowed and have attractive valuations, or there are arbitrage opportunities in the marketplace or spinoffs or some type of corporate action that we believe is mispriced. I used to do proprietary investing on behalf of TD Bank in special situations up to 2009, and so that's an area that I'm quite familiar with.
So those would be the three categories in our portfolio...
For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
- Utility Industry
- Royal Bank of Canada