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Jason Whiting | August 1, 2012

The buy/sell discipline at work

It’s been a little over a year since I took over as lead manager of Trimark Canadian Small Companies Fund.

I haven’t written a blog post yet and it feels like a good time and venue to reflect a little on the changes I’ve made and how I see the Fund moving forward.

When I became lead manager of the Fund in April 2011, I didn’t initially make many changes. I took over from a team I respected a lot and the portfolio included a lot of solid companies that had originated with my small-cap equities colleagues Rob and Virginia. I added two or three new names and sold one company during the first month or so.

The changes since then have been very natural. I have bought and sold companies based on my regular buy/sell discipline. More recently, I have started purchasing a number of new companies in the Fund that I believe are very attractive opportunities.

For example, I’ve added five new companies to the Fund that have seen stock-price declines of 40% to 60% over the past year. There is no common theme to these buys; they span sectors from oil and gas to forestry to infrastructure, but they all contain a thesis that I feel over time will lead to good things for the Fund.

In fact, I don’t think we’re ever going to say no to a sector. As a team, Rob, Virginia and I want to keep an open mind to any sector and then go where the opportunities lie. The discipline is business, management, valuation. We, of course, avoid terrible businesses with no competitive advantage or corrupt management teams, but sector-wise, we’re open to any type of business.

I am a firm believer in owning good companies run by competent people and I only want to buy them at attractive prices. I also want to have a “big idea” in each company owned; something that the market doesn’t notice or appreciate (yet).

Of course, this is easier said than done. These companies are extremely rare, so when our team comes across one, I believe it makes sense to put a large percentage of the Fund’s assets into it. Trimark Canadian Small Companies Fund owns just 32 companies* and our top ten holdings make up 51.79% of the fund’s assets (as at June 29, 2012). The Fund is diverse by idea, which, for me, is a more important goal than simply diversifying by number of holdings.

I hope this quick review of my philosophy for the Fund and some of the changes I’ve made since taking over last year is informative. Please feel free to comment below and I’d be happy to address any questions you might have. If you’d like more detailed information about the Fund (holdings, performance data etc.) you can visit our fund card.

* Unique companies with a weighting greater than 10 bps.

Get more information on Trimark Canadian Small Companies Fund.
Learn more about the Trimark Investments team.

 

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2 responses to “The buy/sell discipline at work

  1. In the five companies you have selected to add to the portfolio, what were the catalysts contributing to the 40-60% decline in the value of those companies? What convinces you those factors will not be recurring in future?

    1. Thanks for your question Irfan. Our investing style is bottom-up and company specific, so there isn’t a quick and easy blanket answer. Each of the five companies’ stock price declined for different, individual reasons. The catalysts ranged from missed earnings to a delayed plant start-up, from slow customer adoption of a new product to a dividend cut. I won’t go into too much detail, but essentially our intensive research process led us to believe that these issues aren’t recurring.

      One of the many benefits of running a concentrated portfolio is that we are able to spend a lot of time on individual investments. This research process, which has been followed for over 30 years at Trimark, helps us separate temporary issues from permanent ones. In each of these cases, I believe the issues can be overcome and in time the companies will be worth a lot more than they are today.

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