Last week, Wealth Advisors Steve Lockner and Joe DiBrita were part of a small group of investment professionals who had the opportunity to visit Mawer Investments (pronounced: more) head office in Calgary. They were very excited for this opportunity as Mawer rarely invites advisors to their office!
Mawer’s investment philosophy, “Be boring. Make money”, set the tone for the presentations.
The first speaker was Paul Moroz, Mawer’s Chief Investment Officer & Global Equity PM. His focus was on how the company is run, their investment process and getting the most out of the people who work there.
Their process is quite interesting, they have a proprietary stock database that goes back 25 years. Every reason why a company was purchased or not has been recorded here. As technology has evolved, this has become a tool that is used for real time discussions on investments. At last count, Mawer has notes on 5,000+ companies.
Paul stressed that they are not stock pickers; Mawer buys businesses. Yes, they look at balance sheets and quarterly reports, but they also look at qualitative factors. They want to know the executive teams, the culture, and barriers of entry. To achieve this, Mawer partakes in 1,200+ management meetings each year.
This ownership approach also means they have long hold periods for companies. On average, positions are held for over 10 years. Compare this with data from the NYSE stating the average hold period is ~5.5 months (Source). As a result of this, they look very different than their benchmark indices.
Paul stressed that they will have tough years like 2022, however, their long-term track record speaks for itself. Paul has conviction that sticking to their process will continue yielding excellent results in the future.
After a quick and rather boring (see philosophy) tour of their trading floor, we met with David Ragan, Director and Portfolio Manager, International Equity, EAFE Large Caps.
David was in the hot seat as international investments struggled in 2022. He spoke at length about the biggest story of the year: rapidly increasing interest rates which were painful for both stocks and bonds.
In his opinion, we are close to the end of the rate hiking cycle. However, he believes we will not get any clear communication from the Federal Reserve on this. He believes Fed officials are afraid to say the tightening cycle is over and expects they will continue to leave the door open by commenting on the “possibility of further hikes”. That was certainly the case in Jerome Powell’s appearance on Capitol Hill earlier this week.
David stressed that in 2022 markets did not care about business fundamentals and companies are still generally performing well. He will continue to look for companies that are generating large amounts of free cash flow as he views this as the best place for future returns.
On his list of concerns was that higher wages will continue to be fuel for the inflation fire. Wages are tricky as they are stickier than many other components of inflation (ex. prices of food, gas, etc.) He expects this to be delayed in Europe as many countries there are heavily unionised and expects a lot of negotiation will be happening.
In terms of other geographies, he does not think emerging markets have become more attractive based on valuations alone. He suggested investors should focus on quality businesses and avoid taking on excess risk to try and boost returns.
Joe and Steve met with a few other portfolio managers for informal conversations before an interesting presentation from Macan Nia, Co-Chief Investment Strategist at Manulife Investments.
Macan was fairly optimistic on returns of balanced portfolios moving forward. As bonds are offering better yields, the expected rate of return for fixed income is increasing. He stressed the importance of diversification as we move forward.
Investors tend to extrapolate the recent past into the future. Using bonds as an example, the tough year in 2022 does not mean 2023 will bring more of the same. The fact that bond prices have fallen so sharply has created an environment where yields are higher and return expectations are greater.
Some interesting comments:
- Job hording – Companies are much less likely to fire people.
- Asking "Will I be able to find new employees for the next growth phase?"
- Some of this is a demographic thing. COVID led to a lot of early retirements and these workers are not coming back.
- COVID transferred power to employees unlike ever before.
- Does not see rate cuts on the horizon for US. But things that there could be a cut in Canada before the end of the year.
Finally, here were some slides of interest:
If you want to hear more from the team at Mawer, they run a terrific blog and podcast. You can check it out by clicking here: The Art of Boring.