The Leon Frazer Way

November 04, 2013

What is the investment approach taken by Leon Frazer?

Up to 60% of the portfolio is invested in the backbone of the Canadian economy — regulated companies in the pipeline sector, utilities, telecoms and financial services.

LEON FRAZER BELIEVES IN TIME IN THE MARKET NOT MARKET TIMING

“We invest in sectors people need every day,” says Douglas Kee, Leon Frazer’s Chief Investment Officer. “You turn on your lights. You heat your home. Unfortunately you have to pay bank charges. You use your wireless plan.”

Companies that provide these services tend to have better earnings and cash flow. Also, these stocks tend to be less volatile than stocks in other sectors.

“In up markets we capture 70-80% of the market returns. In down markets, the portfolio is typically down only 40-50% of the market,” says Kee.

Leon Frazer invests in a diversified mix of companies that have strong balance sheets and pay increasing dividends. Typically, the portfolio will have a maximum exposure of 20% in any one industry and 5% in any one company. There are four questions that have to be satisfied before a company is considered for the portfolio. Is the company well managed? Is the company profitable? Are earnings increasing? Is the product good?

The sell discipline is equally simple. A stock is replaced only if a better alternative can be found.

“If something gets over valued we will trim it,” says Kee. “We won’t sell it all – that’s part of the discipline. If the stock rises to 6% [of the portfolio] we will trim it back to 5%.  We take the money and put it in a stock that is undervalued. We usually stick to the same stocks. Our turnover is low – less than 10% a year.

“We believe in time in the market not marketing timing. Our maximum for cash is 20% but the highest we have got is 15%.”

It seems so simple.

“It is simple if you stick with it over time,” says Kee.

For Pension Fund Newsletter Issue One, click here.