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Transcript:
John: I’m here with Kevin McSweeney from CI GAM Global Asset Management. How are you today, Kevin?
Kevin: I’m doing great, John. How about you?
John: Very good. Thank you for meeting with me on this lovely morning, taking time out of your busy day. I’d like to ask you one simple question to get this going. How long have you been with CI GAM?
Kevin: I’ve been with CI GAM since August of 2008. I joined about 3 weeks before the Layman brothers collapsed. Which gives me some good perspective on cycles but yeah it was about August I think it was August 25th or August 27th 2008, I joined CI.
John: And tell me a little bit about your bio. How did you come to be a fund manager in the first place?
Kevin: Sure. I mean I’ve always liked the markets. I’ve always loved I remember my uncle getting me into it. I’m originally from Halifax and I actually started out with a bachelor of arts in political science from St. Mary’s University. So, we’re Eastern Canadians as we’ve chatted relatively speaking a few times. So, I hold a BA from St. Mary’s University. Then I went after a couple years of working, I went and got an MBA from Dalhousie University. So, I spent some time doing that and then between political science and an MBA in finance. I began in Ottawa with Finance Canada in 2000 for a couple of years as an economist there. I, for a variety of reasons, personal and professional, I came down to Toronto in the spring of 2002 to join Scotia Bank as a regulatory affairs specialist or government affairs person.
That got me into credit risk management. So approving and rating and evaluating large-scale corporate loans for Canadian international borrowers. And then that got me into my role at CI where I for the first part of my career here I was managing a portfolio of high yield or what some people call junk bonds for about seven and a half years.
John: And of course you chose CI out of the other opportunities that existed because you like their philosophy, you like the company.
Kevin: Loved the culture. I loved the dynamism of the financial markets but versus some other places, CI was excellent. I remember interviewing here and you know I was told that the culture here is we have a commitment to active management. We have a commitment to being dynamic and responsive to a variety of macroeconomic and market trends. But from a diverse investment offerings that actually allowed for you weren’t just working on equities, you were thinking about treasuries, you were thinking about government bonds or or corporate bonds. And from a culture standpoint, I was told the three things you have to do here is you have to work hard, you have to be smart, and you have to not be a jerk. I’ve worked on all three. Some, you know, sometimes maybe my brother might question two of those three, but, it’s been a good culture around here. Focused on results, but all of those items have made this a super rewarding and fun place to work.
John: So what funds do you manage at CI may I ask?
Kevin: Sure thing. So I have a few different areas, verticals that I work in. Some of them are: I’m the lead for Canadian equities here and that would lead me to be a you know the head at CI Canadian equity alpha corporate class. That leads into some Canadian balanced funds which you and your fund holders or your investors may have as well. CI Canadian balanced strategy, CI Canadian income and growth. That’s kind of in my role in a more Canadian focused area.
And then I’m also the infrastructure specialist for CI which feeds into some of our income funds. When you think about infrastructure, we’re talking about large assets like airports or toll roads or utilities that pay a lot of dividends. So that plays into my role as a co-manager of CI’s high income fund and diversified yield fund. And then one further piece is that because I’m the infrastructure specialist, we have an infrastructure fund and an infrastructure private pool series that’s more focused on, again those things like pipelines, utilities, data centers and towers and toll roads or airports all of the transportation stuff. So kind of three pots of Canadian equity focused, income focused with some fixed income as well as equities and then global infrastructure as well.
John: So managing those different pots, how do you stay up to date with market developments and the trends and whatnot?
Kevin: You know, that’s probably something that on any given day can be a bit frustrating or it can be a little bit fun when you’re looking at all the diverse sources of information that are coming in, you know to all of us in many ways but also to me with some specialized information sources that that we pay for and and that give us a little bit of an edge on expertise. I’ve got a wide range of sources. I mean, sometimes it’s primary data. Sometimes I’m worried about what’s coming out of, you know, the US government on jobs reports or inflation. I subscribe to Statistics Canada just daily to make sure that I’m up on both kinds of the headline numbers as well as the details here. Then I’m also talking to banks. You know what we call the sell- side banks that might help us develop a view to trade stocks or to invest in stocks or to join an IPO along the way.
So there are research analysts on the stocks. There are economists that will give us kind of the backdrop. There are commodity strategists if we’re looking at a mining or an energy company. And then very importantly, we’re meeting with people directly. There’s a large acquisition going on in the mining sector. We’ve met with the CEO of the company getting taken out on Friday. We’re meeting with the CEO of the company that’s doing the takeout this afternoon. I met with a government minister of a province yesterday as well as a couple of CEOs along the way. So sitting down and directly addressing primary sources of information, some knowledgeable people who can provide context on that information gets us into a spot where we can adapt or adopt our strategies and quickly incorporate as much information as possible into the share prices or security prices or or the risks actually that obviously very important that might impact the portfolios that I manage and the securities that I’m holding. So there’s a lot of information coming at you and you need to collate it and curate it. But it’s great indeed.
John: Indeed. So now we got a little bit of your strategy. How about a little bit about your philosophy? How do you really get this identity or identify investment opportunities?
Kevin: So for me, there’s a couple of things. It’s really, you know, I love talking to you. I love, you know, that your clients might be interested in hearing a little bit more about the items that they hold, but a lot of what I’m doing is sitting here in front of my computer with a spreadsheet here. I’m focused on building high conviction portfolios, not buying something because everybody likes it. Honestly, I look at things where there is too much of a trade. You know, sometimes people, there’s a mania, people, you know, trying to buy things all at the same time. That tends to be when I want to sell to be a little bit contrarian. Maybe we leave a little bit of money on the table, but when things get really crowded, I tend to be off at that. So, you want to focus on companies with strong fundamentals. Of course, you want them to be around for the long term and have the ability to make money for a long time, but then you don’t want to pay too much. You want attractive valuations along the way. So much as anybody, you know, can say, “Well, I need a car.” Well, it makes a big difference whether you’re paying $20,000 for that car or whether you’re paying $200,000 for that car. Some cars are worth $200,000, some cars are worth 20,000. It’s our job to do the fundamental in-depth bottom-up research married with that macroeconomic stuff to identify broader themes and what have you.
That’s really how we do it. It is blocking and tackling modeling and working hard.
John: Gotcha. So, if it’s safe to say your approach to risk management and your tolerance to risk is maybe middle of the road and not trying to hit the home run all the time.
Kevin: I don’t do that. I don’t mind telling you, John. I have two favorite investment quotes, and I’ll give you one of them. Maybe we’ll get to the other one later, but one of my favorites is “I prefer to sleep well than to eat well”. I think that there are a lot of things where you’re heading into risks and so our risk management here, it takes a lot of discipline to not be carried away with sort of themes or trends or things like that. Again, I began in financial services about 25, a little more than 25 years ago and so I’ve seen a few cycles, again managing junk bonds just before Layman brothers fell down. It isn’t about avoiding risk entirely.
Actually, Jerome Powell yesterday said, and this is a quote: “There is no risk-free path”. So there’s which risks do you want to take? So I prioritize diversification. I think that, you know, you have a bunch of companies that are probably going to make money over the long term. You know, some will do better this year. I’m going to get some things wrong here and there, but if you’re diversified and I can add a little bit of value by seeing something before somebody else or taking advantage of when the market, you know, is too afraid of something and I can get in at a good price. That’s where we are.
And I have a good risk management team here that, you know, taps me on the shoulder and just says, “Just so you know, you’re making a very big bet on this geography or on this factor or in this industry”. We’re not prevented from doing so. We’re encouraged to be very active and make our views known within the portfolio. But they make sure that we’re not doing anything that we’re not aware of. So it’s actually very helpful rather than constricting.
John: So you said a word that I think is what I want to run on next and that’s team. No man is an island. You obviously have a team. Talk to me a little bit about your team.
Kevin : Yeah, there’s a variety of them. I specialize in some of, generally infrastructure Canadian equities and balance strategies but there are on most of the funds that I manage first off there are co-managers and I don’t mind saying those co-managers can be both fixed income or they could be other equity portfolio managers there’s a team here that we encourage kind of constructive challenge. I don’t mind saying that since we do have the policy I referenced earlier of not being a jerk, we do have the ability to disagree without being disagreeable. And sometimes people see things differently. So there’s a group of senior portfolio managers that meets all the time basically on two different meetings on a six week rotation. So we’re basically seeing each other, you know, every 3 weeks formally and then informally. So there’s that group of sort of senior portfolio managers and people looking at the broad macro background. Then have some of my co-managers that are specific to some mandates.
But then we have a research team that we call sector specialists or sector leads on research. So let’s say energy you know I have somebody that I can lean on who knows whether say a Suncore or an Exxon or Shell is the best, has the best backdrop within their sector within mining. Do we want to be in copper? Do we want to be in gold? Do we want to be in steel? That person puts out his or her own portfolio of things that they think are the best within their own asset class or within their own sectors. And so they’ll say, you know, I think, you know, is the best risk-adjusted return and I don’t think you need to worry a lot about Exxon, something like that. I then take a look at what their picks are and I choose whether that gets incorporated within the portfolio. But those folks are when I talk about some of the things that I’m doing, I’m often scanning a little bit higher into the broader economy or politics or sectors. And then they help me by saying: if you’re thinking that here’s a stock that’ll work really well or just as importantly here’s a stock that you hold that probably doesn’t match your view and maybe you might want to think about selling it.
So there’s about 50 investment professionals here global expertise offices in Hong Kong offices in New York. We have a trading team, risk management, currency management. All of the things that you need to have strengths in, in order to make the portfolio really hum. So it’s a solid, broad and deep team here.
John: That sounds like a really good backup.
Kevin: Yeah, we manage directly at CI GAM, it’s north of hundred billion dollars and so there’s scale here and you can afford to say you know with a larger organization you can have some of those support functions that look there are some really smart people out there at some smaller shops but everybody has their gaps to an extent you know it’s nice to have a few extra defensemen on the ice in order to make sure that things don’t get through.
John: So is there any real particular math that you use when you’re buying or selling stocks or is it really it’s that team atmosphere that goes into the final decision, but the buck stops with you kind of thing?
Kevin: Yeah, the buck stocks stop with me. One of the interesting things, again, I kind of alluded to earlier. I don’t like one thing: I don’t like crowded trades. I don’t like it when everybody’s in on something and all of the gains. I know it’s more fun when the markets are going up for your investors and everybody feels smart and more optimistic and wants to deploy cash. For me, you know, if Nvidia’s gone from, you know, 160 to 185 or whatever, I tend to think, well, that’s 25 bucks I can’t make anymore. So, it’s actually a little less attractive. Now, the fundamentals will offset.
It’s obviously growing quite a bit. We won’t get too far into individual stocks but I tend to think, I tend to be a bit contrarian and the other thing is that different things work in different sectors you know capital expenditures when a company is spending a lot of money to build a factory or to build a plant or to build you know a utility is building a big new electrical grid the market takes different views on that, you know, or there’s an airport company in Europe right now that just announced: hey we’re actually not spending $9 billion, we’re spending $12 billion on some expansions. The market says, “Okay, that’s not that it doesn’t work for our free cash flow model and that’s less money for dividends.” That sector might say, “I don’t like that.” And so, you have to be aware that in industries or infrastructure, capital expenditures can be negative.
On the other hand, you know, when a chip company or a tech company announces that they have this big AI data center coming in or a new factory is being built in certain sectors, well, that can produce for a growth company. That’s just another demonstration of growth and that can actually make the stock take off. So, one thing that’s really helpful is the team right down there is composed of people that have, you know, diverse ways of making money in different sectors and it’s pretty exciting to talk to them and to get those perspectives and mash them together in a portfolio.
John: Beautiful.
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