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Inside this money manager’s ‘all-cap’ investing style

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Stephen TakacsyThe Globe and Mail

Money manager Stephen Takacsy isn’t waiting for the markets to fall further to buy stocks he thinks will be good bets down the road.

“I think a lot of the damage is done,” says the chief investment officer at Lester Asset Management in Montreal, who manages about $360-million in assets.

“It’s an excellent time to buy high-quality companies that should do well in good times and bad,” adds Mr. Takacsy, who is also the firm’s chief executive officer and lead portfolio manager for Canadian equity.

“It’s important to stay invested since markets can turn on a dime,” he adds, but is particular about which sectors he’s buying and backing away from right now.

“I would avoid certain sectors like real estate, alternative lending, and high-priced consumer discretionary goods and services,” says Mr. Takacsy, who has an “all-cap” strategy, which means investing in small, medium and large-cap companies across sectors.

His Canadian equity strategy has generated an annualized total return of 9.7 per cent since it was launched 16 years ago, as of Friday, compared with a 6.4 per cent annualized total return for the S&P/TSX Composite Index over the same period.

So far in 2022, his fund was down 7.9 per cent, versus a 5.7-per-cent drop for the S&P/TSX Composite Index, also both based on total returns.

Mr. Takacsy says his fund has lagged the benchmark this year mainly because of its lower-energy weighting, owing to the firm’s environmental, social and governance policies, as well as its low-volatility investment philosophy.

His firm also has a core fixed income strategy that has seen an annualized return of 6.1 per cent over the past 15 years as of Friday, versus a 3.5-per-cent return for the Canada Universe Bond Index over the same period.

Mr. Takacsy says his success in bonds has been seeking out higher-yielding securities with shorter duration. “We like to take credit risk, not duration risk,” he says, the latter referring to the sensitivity of bonds to changes in interest rates.

And while bonds have been in a slump this year, Mr. Takacsy believes they remain an important part of portfolios and currently have very attractive yields. Although some of his clients did get a little antsy in the spring, he says, “once you explain the math, they really calm down.”

The Globe and Mail recently spoke to Mr. Takacsy on what he’s been buying and selling.

Describe your investing style.

We’re looking to beat the S&P/TSX Composite Index by buying companies with lower risk and more industry diversification. Our investment style is value-driven, which means we’re seeking to buy shares at a discount to a company’s true worth with the goal of increasing shareholder value through earnings and dividend growth, share buybacks, spinoffs, or an outright sale.

What’s your take on the current market environment?

Obviously, there are many moving parts right now like high inflation, rising interest rates, labour shortages and supply chain disruptions. We believe inflation will subside throughout the year as demand softens from central-bank rate hikes and supply chains unclog. We also expect a “soft landing” – at least in North America. Europe, Asia and some other emerging markets may not be so lucky due to geopolitical issues, high debt levels, and weak currencies. Canada and the U.S. are benefiting from low unemployment, high personal savings, and strong currencies. Also, interest rates are coming off a historically low base and corporations are generally in good shape.

What have you been buying or adding in recent months?

Some recent buys include Northland Power, WSP Global, Cargojet, Richelieu Hardware, ATS Automation, Pet Valu and Jamieson Wellness. We also recently bought label maker CCL Industries again, after having owned it in the past. These are all high-quality companies that were trading at rich valuations, but we were able to pick up at more reasonable prices. These names also fit with our strategy to remain well-diversified in non-cyclical and non-economically sensitive businesses that are recession resistant and have pricing power. These companies also benefit from powerful long-term trends such as aging demographics, digitization, infrastructure spending and the transition to clean energy.

What have you been selling or trimming in recent months?

We took profits earlier in the year on real estate stocks like Canadian Apartment Properties REIT and Boardwalk REIT that were near their highs. We also reduced our technology sector exposure to lower the duration and volatility of the portfolio. We also recently trimmed Dollarama. Even though we love the company, it was getting expensive and becoming too big of a weighting in our portfolio.

What are some of the best and worst stocks you’ve owned in your career to date?

The best stock has been Logistec Corp., which has risen sevenfold since we bought it in 2006. The marine cargo handling and environmental services company is generating record results. Some of the worst investments were in some media stocks that we held on to for too long.

What investing advice do you give family members when they ask?

I tell my children that they need to work hard, make a budget and save money to be able to invest. I also say they need to invest in a strategy with a good long-term track record and not in short-term stock tips or speculative sectors like cryptocurrency. That was a harder sell when bitcoin was soaring last year. I also tell them to invest their savings in equities regularly, over the long run. The power of long-term compounding can create tremendous wealth.

This interview has been edited and condensed.

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