Catherine McDermott plays with Ryian Younis, 16-months-old, who has cerebral palsy, at his home in Scarborough while his mother, Maya, watches on Oct. 23, 2012. McDermott, an early childhood educator and resource consultant with the Holland Bloorview Kids Rehabilitation Hospital, engages Ryian in play-based skill development and learning.Matthew Sherwood/The Globe and Mail
From market shakeups at home to faltering economies overseas, it has been a tumultuous first half of 2015 for three portfolio managers seeking strong returns not only for clients, but also for a charity.
The three Canadian managers are halfway through the Change for Kids Investor Challenge, a fundraiser where they will invest and manage money for a year. At the end, the donations and profit will be sent to Toronto's Holland Bloorview Kids Rehabilitation Hospital, which is the largest facility of its kind in Canada for kids with disabilities.
The managers participating in the charitable contest are Lesley Marks, chief investment officer of fundamental Canadian equities at BMO Asset Management; John Wilson, chief executive officer of Sprott Asset Management; and George Lewis, group head of RBC Wealth Management. They started out with a cumulative $75,000 to manage for the hospital. That sum has swelled to $130,300 raised at of the end of June. They continue to collect donations of cash or securities through changeforkids.ca.
All the funds will go to support Holland Bloorview's specialty in care, education and research for children with a wide range of physical and developmental disabilities. The facility has about 580 patients in residence and 55,000 outpatients each year.
But global markets have thrown a lot at these managers since the challenge began in January. Initially, there was the effects of falling oil prices to factor in. Then there were fluctuations in currency to contend with. And now there's the volatility in the euro zone and China to review.
This is our second quarterly checkup on how each of the managers strategies have fared so far, and where they see opportunity.
The manager: George Lewis
The fund: RBC Global Dividend Growth Fund
Second quarter and outlook: After bolstering exposure to Europe's markets in the first part of the year, Mr. Lewis said the fund pulled back in the second quarter, taking profit in some of the better performing stocks. He's now watching Greece carefully to see how the country negotiates with its creditors, which has weighed on both the euro zone and global equity markets.
More broadly, Mr. Lewis notes that recent months have brought a moderation in global growth, as the U.S. and China's economies have slowed. "The euro zone and Japan are on a path to accelerating growth as the U.S. looks to be entering a more mature phase," Mr. Lewis said. "There remains the risk of a rise in bond yields when the Federal Reserve finally starts raising short term interest rates, and increased volatility in financial assets more broadly."
Mr. Lewis highlights companies such as MasterCard Inc., CF Industries Holdings Inc. and Deutsche Telekom AG as some new additions to the portfolio in the second quarter, while the fund exited positions in companies such as Bayerische Motoren Werke AG (BMW) and Verizon Communications Inc.
The fund is the challenge's top performer so far, earning a return of 14.6 per cent in the first six months of the year. Much of those gains were made in the beginning of the year, and Mr. Lewis had previously warned investors to expect stellar returns to moderate.
Top five holdings as of May 31:
- Williams Companies Inc.
- UnitedHealth Group Inc.
- CVS Health Corp.
- Intel Corp.
- Blackstone Group LP
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The manager: John Wilson
The fund: Sprott Enhanced Equity Class fund
Second quarter and outlook: The fund hedged many of its positions in the quarter, since Mr. Wilson was expecting that market volatility could shake up the portfolio.
"Yes, partly because we thought Greece might go right to the wire, but also because we still expect the [Federal Reserve] to raise rates and I don't think we've seen the volatility associated with that yet," he said.
The fund only holds stocks traded on the Toronto Stock Exchange, the New York Stock Exchange or Nasdaq. "We went through a really easy three-year period to own equities, particularly Canadian equities because of the decline in the Canadian dollar," Mr. Wilson said, adding that conditions are more difficult now. "It won't be so much of a market call as a stock specific call that will help you going forward."
Mr. Wilson said he was pleased with how the fund weathered the quarter, both in managing the downside and in terms of stock picks that turned out well. One such name was Hudson's Bay Co. "We really like the acquisition they did in Europe," he said of the retailer's move to buy German department store chain Galeria Kaufhof for about $3.9-billion.
The fund's year-to-date returns were 7.4 per cent year-to-date as of June 30, in line with what the fund posted in the first quarter.
Top five holdings as of June 30:
- NXP Semiconductors NV
- CGI Group Inc.
- Alimentation Couche-Tard Inc.
- Element Financial Corp.
- IntercontinentalExchange Inc.
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The manager: Lesley Marks
The fund: BMO Asset Allocation Fund
Second quarter and outlook: With lower energy prices, this fund has focused on companies that benefit from a lower oil price and from a weaker Canadian dollar so far this year. That includes companies with large businesses outside of Canada, or with export businesses.
"My outlook on Canadian stocks now has a similar theme," Ms. Marks said, adding that IT services company CGI Group Inc., which has 80 per cent of its revenues outside of Canada, is one such name that fits this theme.
She said the fund has continued to pare down it energy holdings, selling some smaller positions in companies such as ShawCor Ltd. last quarter.
Ms. Marks approached the second quarter of the year more optimistic about Canada than she was a few months ago, due in part to stabilizing oil prices. But in recent weeks concerns about China's stock market – and the impact that it could have on the global recovery – have increased.
"The fund that we've chosen … has a Canadian bias, so 70 per cent of the assets have to be invested in Canada," she said. "Given that Canada has not been one of the stronger performing markets, we're actually quite pleased with the returns." The fund is up 3.5 per cent so far this year.
Top five stock holdings as of June 30:
- Toronto-Dominion Bank
- Bank of Nova Scotia
- Manulife Financial Corp.
- Royal Bank of Canada
- Canadian National Railway Co.