Invesco Canada blog

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Michael Hatcher | October 16, 2014

Moving forward by standing still

I recently read an interesting piece that was based on an earlier article by James Montier called Beware of Action Man. As I was reading, I thought it would provide a good analogy of how I’m currently managing the Trimark Fund in the current environment.

Montier’s article highlights a compelling study that examines the direction of penalty kicks by goalkeepers playing soccer.

The study found that goalkeepers had a tendency to leap to the right or to the left (94% of the time), as opposed to staying in the middle. It was revealed, however, that statistically goalkeepers would perform better and have a higher percentage of penalties saved if they stood in the centre of the goal. Instead, they only stayed in the centre about 6% of the time. Perhaps goalkeepers feel inadequate if they just stand in the middle and do nothing.

Why am I sharing this story with you? Because for the past several months, we have stayed focused and essentially have not done anything different. Where other people, arguably, are basically going right and left in response to the markets, we’ve stood in the middle. We’re doing what the average goalkeeper does only 6% of the time.

Presently, I believe we are in an economic environment that is modestly getting better. I don’t see any risk to things actually deteriorating significantly, nor do I see things getting optimistic anytime soon. We are going through a long process of deleveraging. In this bumbling economic environment after a strong performance last year, the markets are generally up. In my view, the markets are relatively fully-valued; therefore, we are not finding investments at 30% discounts to their intrinsic value. If we’re not finding appropriate discounts, then we are willing to be among the 6% who just stand still.

Update on Trimark Fund
Would we like to be more active in the Trimark Fund? Yes, but the buying opportunities aren’t available. There haven’t been significant changes to the Fund’s cash position, and the Fund has very little turnover. Although there is currently minimal activity in the Fund, I’m happy with our investments. The Fund holds high-quality businesses with mostly better than the index ROEs (return on equities), with higher dividend growth, higher earnings per share growth, better margin and lower debt. These are the kinds of securities we like to hold in changing markets.

Source: James Montier, Mind Matters: Beware of Action Man, Société Générale, January 7, 2008

Feel free to leave any comments or questions that you may have, and thank you for your continued support.

Learn more about Trimark Fund and the Trimark Investments team.

Trimark Fund, Series A provided the following performance returns as at August 31, 2014: 1 year, 21.89%; 2 years, 20.25%; 3 years, 16.41%; 5 years, 11.16%; 10 years, 4.13%.

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