Michael Stanley is the antithesis of the publicity seeking manager. This camera shy, dry-humoured manager of BMO Equity Fund has suggested a publicity photo would only hurt the sales of his fund. Stanley would prefer to say less and perhaps let his track record do the talking. It tells a story of steady risk-adjusted returns over the past decade, the result of a no-nonsense growth oriented management style.
Stanley has little interest in playing up his achievements -- an 11.4 percent annualized return over the past decade -- running BMO Equity Fund. That is not his style. And that style, a low key and even-handed investment approach, is the reason for his success over the years.
The growth strategy that Stanley employs is straightforward. He looks for companies with consistent earnings growth especially those that are demonstrating positive earnings revisions, the idea being that earnings momentum is priced into the market with a lag. Stanley calls it a GARP strategy (growth-at-a-reasonable-price), which is a blend of growth and value, but that is probably an overly simplistic explanation.
Stanley 's style would appear to be one of guarded growth rather than one that is simply preoccupied with valuations. "No, we are not too sticky on price," says Stanley . "If we buy a company at a discount to its intrinsic value, all the better, but that's not what we are trying to do. Typically speaking since we have more of a growth bias, we are less likely to buying them on the cheap."
Valuations are only one of many -- and the least emphasized -- tools that Stanley utilizes to tame risk: "These are companies that can finance their growth internally if possible; they are the companies with sound financials; they are companies that are well managed; they have a history of using capital properly; and we try to take a look at that relative to the earnings profile that we anticipate and the price we are paying for it," says Stanley in describing the types of companies he owns.
Valuations were extremely significant to Stanley , however, in the late 90s technology market bubble. He exercised sound judgment by forgoing owning many of these richly priced growth stocks and limited the fund's losses to roughly half the market's. "We saved our clients a bit of money," says Stanley in typical understated fashion.
Neither is China getting Stanley very excited. The biggest growth story of the current decade, China has been a major factor in the bull market in resource and energy stocks. Stanley is nonplussed by the whole affair. "I don't think that the world has changed all that much in the last 4 years. I mean, I think there was still roughly 1.1 billion people in China then. So if I'm not mistaken, I think oil prices will return to $25 [ U.S. per barrel]."
Stanley is lightening up on companies in the materials sector as a result of his less sanguine view about China after having been overweight the sector based on earnings momentum. That does not mean that he is taking his holdings down to zero. Rather he is erring on the side of caution after strong gains recently, a move that is informed by his strict sell discipline.
"We have a couple of flags that pop out that really force us to reevaluate why we are holding companies whether it be excessive valuation, change in management, corporate structure or business strategy deteriorating financials or finding something else that meets our goals or criteria even more so than what we have."
Being cautious on these growth trends has caused performance on the fund to lag the index in growth markets. ".when you come out of the market in an aggressive fashion, where there is, maybe a little more speculation, we lag a little bit sometimes," says Stanley, but this may not be such a bad thing. In fact, the fund has only lagged the index in two calendar years over the past decade, in 1999 and in 2003. And it has been Stanley 's attention to risk that has made up that difference when gains and losses are considered in toto.
Stanley is a purist and keeps foreign content to a minimum. He has never held more than five percent foreign content over the past decade. His reasoning is quite simple: "We are Canadian Equity," says Stanley who is not trying to reinvent the wheel managing BMO Equity Fund nor should he have to when what he has, runs so well.
