Fund manager seeks

(September 24, 2003) “Conservative and consistent.” That’s how mutual fund manager Keith Graham, the latest addition to the AGF team, sums up his investment philosophy. Graham, who left AIM Trimark last month to join AGF, held an investor conference call yesterday to discuss his “real value” style and the two funds he’ll manage for AGF.

“I’m a bottom-up, long-term, conservative value investor,” Graham said. “I pay attention to both risk and return and I believe that at times, investors can lose sight of one-half of that equation.”

At AGF, Graham will manage an equity fund — the Canadian Real Value Fund, and a balanced fund — the Canadian Real Value Balanced Fund.

Graham says “real value” investing involves asking two basic questions: Is it a good business, and is it a good price?

Good businesses, the fund manager says, have a competitive advantage, something that makes the firm unique, as well as strong financial fundamentals.

“I’m always on the lookout for good businesses because there aren’t that many of them,” he says.

Graham’s pricing measures include price to earnings ratio, price to book value ratio, price to cash flow and dividend yield, as well as excess cash flow. Digging into a company’s financials can produce important information, he notes.

“Many of the scandals we’ve seen recently, much of the information that later came to light and caused significant distress was fully disclosed in the financial statements.”

To illustrate his methods, Graham broke down the performance and financial statements of two real firms. One of the companies, which he wouldn’t name because he is currently active in the market buying the stock, met the criteria for being a good business at a good price. The second firm, Nortel Networks, did not fare well under Graham’s scrutiny.

“If you look at the fundamentals, it is not a good business and it’s not a good price,” he says. After falling dramatically, Nortel’s stock price has rebounded significantly this year.

On the question of returns, Graham says his true benchmark is GICs. “I believe if people are going to take their money out of safe, secure investments and invest it in funds I manage, I have to be able to deliver to them, over a three- to five-year time frame, a return that’s better than the guaranteed-type investments,” he says.

“That means that sometimes I don’t go up as much as others, but I generally protect capital very well on the downside.”

Changing firms doesn’t mean changing approach, Graham says. “My investment style and process has been consistent. I’m not going to do anything different. My style has a proven track record of success.”

Asked for his current market outlook, Graham admits that it’s hard to find value when risk remains a concern.

“I worry that some people are forgetting some of the lessons they thought they learned three years ago,” he says, adding that next five to 10 years will be a time to focus on preservation of capital, as much, if not more, than growth.

Still, he says there are always businesses that are growing and there are always investment opportunities. “Sometimes they’re just harder to find.”

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca

(09/24/03)

Doug Watt