James Morton of the Cundill Recovery Fund, Once Again

For the second time this year, Morningstar in Canada profiles James Morton, lead manager of the Mackenzie Cundill Recovery Fund. (He also manages the Mackenzie Cundill Emerging Markets Fund.)

One of his picks:

Turning to Europe, Morton likes firms such as Ciba Specialty Chemicals Holding AG, a Swiss-based chemicals manufacturer that supplies the plastics, automotive, and water treatment industries. "It's got a lot of negatives," says Morton, noting that the company is facing cost pressures and that its U.S. earnings are weak when translated back into the strong Swiss franc.

"It's not the world's most glamorous business, and maybe we're a little early in buying it," says Morton, who expects the market will start to recognize that the firm's cost-cutting program is working. "But I'd be astonished if the stock is not significantly higher in a couple of years. In the meantime, we're getting a 5.5% dividend."

An this interesting bit:

Morton tends to limit holdings to about 5%. Turnover has been moderate at 41% for the year ended June 30, 2007 and 26.7% the previous year. "We stay with names for about 18 months. If nothing happens, we sell," he says. "We don't always get it right."

I don't know if 41% turnover is "moderate," but that may come with the territory in running a recovery fund.

Comments

[Jason]

As a fund manager, why would voluntarily limit yourself to investments in "recovery situations"? Obviously value investors can see the benefit to these situations, but to limit your entire fund to such? Is there in the Canadian tax-law that makes it more appealing to organize a fund this way?

[John]

Jason: I don't know anything about Canadian tax law. But Cundill is like most fund companies in that it's a "family of funds." James Morton also runs their emerging markets fund. In Canada Cundill also has a US-only fund, the flagship Value fund (which is global), a fund that focuses on Canada, etc.