by Salman Ahmed
CGOV’s Gord O’Reilly and Steve Cocchetto recently provided our clients in Toronto an in-person update on the Steadyhand Equity Fund. Aided by thoughtful questions from the attendees, Gord and Steve covered a lot of ground. Here are some of the main themes from the conversation.
The team at CGOV is cautious in today’s environment. Outside of their existing holdings, few stocks in North America meet the team’s requirements: a competitive advantage, clean balance sheet, good management and reasonable price. It’s the last qualifier, reasonable price, that most stocks fail to pass.
Instead, the team is looking at other regions. Europe has been under a cloud, but there are high-quality businesses, particularly healthcare and utilities companies, that have been cast aside simply because they happen to be headquartered there.
CGOV is also brushing up on Japanese stocks. Companies in the region have long claimed to be improving shareholder value, but only recently has there been tangible evidence of the change.
Gord and Steve spend a lot of time thinking about how to construct the portfolio with diverse ideas. Simply looking at how much of the portfolio is invested in each industry doesn’t properly convey the diversity of stocks in the portfolio.
For example, roughly 20% of the fund is invested in financial companies. For Canadians, “financials” is synonymous with our big five banks, but the Equity Fund has only every held one – TD. Other holdings include CBOE and Experian. CBOE operates the largest U.S. options exchange and has exclusive rights to a unique index called the VIX. Investor interest in the VIX increases in times of uncertainty because its value increases as market volatility rises. CBOE thus benefits in times of uncertainty. Experian too is not a conventional financial services company. Rather than take deposits, lend, or insure, it monitors the credit worthiness of consumers and provides credit analytics.
What gets them excited
Gord is particularly excited about opportunities for active managers as index investing grows in popularity. Index funds hold stocks in the same proportion as the benchmark they passively track. The iShares S&P/TSX 60 Index ETF, for example, seeks to mimic the S&P/TSX 60 Index.
When a few large investors, or many small investors, sell the same index funds, stock prices of the constituent companies can fall. This happens despite many of these companies continuing to have great long-term prospects. Focused managers, like CGOV, can take advantage of these cheaper prices.
If you’re interested in digging deeper into the Equity Fund’s holdings or long-term performance, I encourage you to check out our latest Quarterly Report.