Internally managed portfolios
The search for additional value is the most important principle behind our active management approach. Management is committed to this approach in the belief that passive investing through conventional public equity market indexes cannot, with confidence, generate the risk-adjusted returns the plan requires.
Where we believe we can identify opportunities to add value above market benchmarks, we buy extra shares of companies we think have greater potential for price appreciation. Our approach is to select shares of companies that are undervalued using a ‘bottom-up’ method of analysis.
We look at each company’s financial performance, operations, industry position, management quality, long-term business plan, board structure and board independence to determine which companies have the best chance of increasing in value over the long-term.
Over the past several years, we have developed the ability internally to manage portfolios that invest in public companies around the world. Previously, we focused on Canadian companies and used external managers to gain exposure to foreign markets. This shift toward internal management has been successful. The results for our internal portfolios have outpaced those of our external managers, and the majority of our investments in public companies now are managed in-house. Our global perspective has provided us with many more opportunities to create value. At the same time, we remain committed to external foreign equity managers who have earned exceptional returns for the plan for many years.
Externally managed portfolios
While Public Equities places a great emphasis on internal active management, external equity managers still play an important role within the equity program.
The core of our external manager program is made up of 10 to 12 global equity managers that we feel are able to significantly outperform the benchmark (MSCI All Country World ex Canada Total Return Index). We are confident in our ability to select skilled investment managers who run concentrated, low-turnover portfolios that generally have a value bias.
We also employ a small number of specialized regional or country managers that are expected to provide significant value add. These managers are selected to gain access to their local presence and expertise in specific markets that we view as providing significant long-term return potential.
The Structured Portfolios and External Managers group also runs a number of “structured” portfolios and departmental overlays. Our four “structured” portfolios use a systematic approach to stock selection that seeks to leverage our information advantage. The group is also responsible for several departmental overlays that include the management of currency, style, sector and country tilts.
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