You've read here that one of the investors I admire most is Peter Cundill, the legendary Canadian value investor. Cundill oversees mutual funds and limited partnerships. But his flagship investment vehicle is the Mackenzie Cundill Value Fund in Canada. Morningstar has interviewed Andrew Massie, who co-manages the fund with Cundill and David Briggs. The article is by Diana Cawfield:
With its deep-value mandate, the Cundill team scours the world for "unloved, unwanted," stocks, says Massie, of Vancouver-based Cundill Investment Research Ltd. "Analytically, we feel that the global markets are fairly valued, not overvalued or undervalued, so we're going to stick to buying cheap stocks.
The managers like to buy companies that are trading at 60 cents on the dollar in terms of their assessment of fair value, and they will typically sell at 100 cents on the dollar. "The art is in the selling," says Massie. If something trades at multiples of fair value, there is no margin of safety and they don't want to own the stock.
"We probably turn over a third of the portfolio a year," says Massie. But there are a couple of names that have been in the fund for about 15 years. As long as the stock is trading at less than net asset value, says Massie, they're happy to hold it.
Massie discusses how Cundill's approach has changed:
Over the years, there's been an evolution as opposed to a revolution in the Cundill team's stock-picking strategy, says Massie. When he joined the firm in 1984, the managers were looking purely for stocks trading at a nice discount to book value. These days, they're looking for stocks trading at a discount to fair value, looking for the extra assets.
"Because if you stick to the way Peter was doing it in the 70s and early 80s," says Massie, "you end up with value traps: stocks that are statistically cheap, continue to be cheap, and there's not a lot going on."
Then he talks about the Cundill approach to portfolio concentration, their bottom-up method of finding stocks, and where most of the fund's money is invested.
Mackenzie Cundill Value holds a fairly concentrated portfolio of 34 stocks. The comfort level for the average stock position is no more than 5% of assets, but that will be raised if the team really likes an idea.
Typically, the team doesn't go looking for companies by countries or sectors, and the fund's geographic and industry exposure will be very different from the MSCI World Index. Currently, the highest industry sector weightings are in global financial services and insurance.
As for geographic exposure, at last report the biggest equity weighting was the hefty 38.1% held in Japan, followed by a very much underweight 11.1% in the U.S.
The fund's cash holding clocks in at 26.3% as of December 31, 2005.
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