Manager Monitor: Clayton Zacharias, Invesco Canada Ltd.

Trimark Canadian Endeavour, primarily a mid-cap mandate, is in the Canadian Focused Small/Mid Cap Equity category. It can hold up to 49% of its portfolio in foreign securities, and has the flexibility to invest in Canadian stocks of all market capitalizations.

Employing a value-oriented discipline based on fundamental analysis, Zacharias holds 25 to 35 high-conviction names in Trimark Canadian Endeavour. Key considerations for him are the quality of the business and the management team, and “how much we’re willing to pay,” he says. “Buying a company at a discount not only helps generate returns over time, but it limits our downside risk.”

The Trimark team members are not deep-value investors, looking at assets trading at 50 cents on the dollar, adds Zacharias. Rather, he and his colleagues seek businesses that have some sort of competitive advantage in an industry.

A prime example is the recent addition of Deere & Co. (NYSE:DE). As managers “looking out five to 10 years, John Deere is a long-term story,” says Zacharias. In a cyclical industry, the concern over a decline in farm incomes and a reduction in demand for farm equipment is “absolutely true. We believe that provides us an opportunity to buy Deere at a discount to our intrinsic value.”

Zacharias cites Deere’s strong brand name, competitive advantages and its dominance in global agricultural equipment, “with a 50% share in North America, 50% in Brazil and 40% in Australia.” As well, “they lead the industry in product innovations,” he adds, “spending $1.5 billion a year in R&D.”

Consistent with Trimark Canadian Endeavour’s emphasis on higher-growth names, the fund holds no banks. While they are quality businesses, the banks’ growth prospects aren’t as strong as they have been in the past, according to Zacharias. By comparison, “we’ve tended to find a fair amount of smaller companies that we find compelling.”

Until about two and a half years ago, the holdings also did not include any energy exposure. Today, the fund has an approximately 27% weight in energy. “It’s really been a function of the valuations in that sector,” says Zacharias, “driven off the bottom-up fundamentals as commodity prices collapsed a few years ago.” The price decline offered a buying opportunity for a few select energy names.

Among the top names in Trimark Canadian Endeavour, which also has some large-cap holdings, is Canadian Natural Resources Ltd. (TSX:CNQ), which Zacharias considers to be one of the best oil and gas companies in Canada. “We got our opportunity a couple of years ago,” he says, “when negative factors impacted the oil prices.”

Zacharias finds appealing the company’s very diversified portfolio across different oil plays, “including one of the largest gas portfolios in the country.” Other positives that he cites are a management team with significant personal investments in the business “Their interests are very much aligned; they have skin in the game.”

Zacharias, 40, is a graduate of Simon Fraser University, having received a BBA in 1997. He joined PricewaterhouseCoopers Canada as a co-op student in Vancouver in 1994 and remained with the company after graduation. In 2000, he received the CFA designation. Then in 2002, he left the firm to join his current employer, the then named AIM Trimark Investments, as an investment analyst.

Though Zacharias’s job is to be an equity investor, he’s not required to be fully invested at all times. Trimark Canadian Endeavour recently held 20% of its assets in cash. “To the extent that we can’t find enough compelling investment opportunities,” he says, “we’ll let cash build. Cash has built up over the last few years as the market has risen in value. Not only have we trimmed the positions as weights have risen, we sold companies outright as their stock prices reached our intrinsic value.”