Andrew Parkinson, managing director and portfolio manager at Van Arbor Asset Management in Vancouver.
Who: Andrew Parkinson, managing director and portfolio manager at Van Arbor Asset Management in Vancouver.
The Strategy: To identify a fairly small number of undervalued stocks in sectors that are lagging for one reason or another, hold them until they start looking pricey and then sell them and switch to something else.
In choosing stocks for their Canadian fund, Mr. Parkinson and Youssef Zohny, associate portfolio manager, screen out companies with less than five years of trading history or less than $250-million in market capitalization. They then sift through the remaining list to find which ones are cheap. That leaves them with 70 to 80 companies to choose from.
"Then we do a top down [analysis]" Mr. Parkinson said in an interview. "What sectors are cheap in comparison to other sectors?" The result is the 20 stocks that go into the fund's portfolio.
Maple Leaf Foods Inc. is an example. Early last year, resource stocks were booming but consumer stocks were left behind, he notes. By mid-year, the portfolio managers decided to take profits in their energy and material shares and look for something less expensive.
"Maple Leaf was still cheap," Mr. Parkinson says, and it was in a sector they liked.
Other holdings include Shaw Communications Inc. , Canadian Utilities Ltd. , Rogers Communications Inc. and TransAlta Corp.
But the big gains in 2009 came from oil and gas and mining company shares bought late in 2008, Mr. Parkinson says, including Petro-Canada, Suncor and Teck.
When It Works Best: It's a strategy for all seasons because the fund managers are not tied to a particular index weighting and can be fleet-footed as they move in and out of different sectors, says Mr. Parkinson, who has worked in the investment industry for 25 years.
"When we started the Canadian fund in 2005, we had a stable, slow-growing stock market. The fund was ranked No. 2. Last year, in a very volatile market, the fund came out on top."
What Could Go Wrong: A tumbling stock market could overwhelm all stocks, like it did late in 2008 and early 2009, he acknowledges. Indeed, Van Arbor's Canadian fund fell more than 36 per cent in 2008.
How Is He Doing? The Van Arbor Canadian Advantage Fund topped the pile last year, rising 100.25 per cent net of fees. That compares with 30.81 per cent for the S&P/TSX composite index.
Since inception in 2004, the fund is up 17.07 per cent, compared with 7.34 per cent for the S&P/TSX.
Market Outlook: For investors looking two or three years out, Mr. Parkinson sees good opportunities. Short term, though, earnings may disappoint and some sectors will lag.
He is keeping an eye on utilities and telecoms, which "really haven't taken part" in the big 2009 rally.
Looking ahead, he says: "It's working, we're doing well, we have an exciting year ahead of us."