Dividends are good luck for Marc-André Robitaille, who has managed the $788-million AGF Dividend Income Fund since its inception in 2003.
Robitaille, who is also president of Robitaille Asset Management Inc. of Montreal, has forged an enviable track record. The fund has an average annual compound return of 17.2% for three years ended Aug. 31, well ahead of the group’s average return of 14.9%. Moreover, the AGF fund has never had a dry spell.
The AGF fund’s best 12-month period — ended April 30, 2004 — scored a gain of 41%. Even its worst showing, the 12 months ended Aug. 31, 2007, was a gain of 5.37%.
“The worst return over a 12-month period is still positive,” says Robitaille. “It’s my goal to offer the best possible return for as little risk as possible. It’s a characteristic of dividend-paying stocks that they are defensive, and historically they have achieved most of the return of the overall market but with less risk.”
Robitaille recently returned to managing the AGF fund after a leave of absence, during which he set up his own money-management firm. That plan was in the works since the fund was acquired as part of a package of 14 ING funds bought by AGF Management Ltd. in 2005 from ING Investment Management Inc. Both firms are based in Toronto.
Robitaille stayed on in Montreal as a portfolio manager with ING and remained as manager of the fund, originally called ING Canadian Dividend Income Fund, while it was relaunched under the AGF name. In January 2007, he left ING to found Robitaille Asset Management, but returned five months later to lead the AGF fund as an independent manager. AGF chief investment officer Martin Hubbes oversaw the fund in his absence.
Robitaille applies a “growth at a reasonable price” (a.k.a. GARP) strategy to dividend-paying stocks. He says it is less risky than pure “growth,” which can result in “falling in love” with a fast-rising company even when it becomes too expensive; or “value,” which can mean excruciatingly long waits for unrecognized stocks to come back into fashion. He looks for stocks that are less expensive than the overall market but with better profitability, stronger balance sheets and superior growth prospects.
“We like to go after unrecognized growth,” he says. “When growth potential is not reflected in the stock price, you’re not paying for it. And if growth doesn’t happen, we won’t get hit, as we weren’t paying for it.”
Robitaille’s portfolio includes both stocks and income trusts. His fund usually holds about 60 to 70 names, aimed at picking the cream of the crop in each sector of the Canadian market. Robitaille is not an index-hugger and, if there is a dearth of opportunities in any sector, he will bide his time until an attractive opportunity arises. The fund currently holds about 25% of fund assets in income trusts, with more than half in energy trusts.
“We look at trusts in the same way as any income-paying stock,” he says. “There aren’t a lot of quality dividend-paying stocks in the oil and gas sector, which is why we own more trusts in this category.”
The fund’s largest sector weighting is in financials, which make up about 47% of the portfolio. The fund tends to have scant exposure to technology and health care, as there isn’t a large selection of dividend-paying stocks in those sectors in Canada.
Many of the fund’s stocks are long-term holds, but Robitaille will sometimes trade in and out of part of a position to take advantage of price inefficiencies in the market. For example, just before a stock begins to trade “ex-dividend” it may be of interest as a “buy” if the value of the upcoming dividend is not fully reflected in the stock price. He would then sell after the dividend has been paid. If all goes well, the strategy means the fund achieves both the dividend and a capital gain.
Dan Hallett, president of Windsor, Ont.-based research firm Dan Hallett & Associates Inc. , notes that this strategy also increases fund turnover and trading costs: “If this sounds like a strategy that involves frequent trading, that would be a very big understatement.”
While the AGF fund focuses on large and liquid dividend-paying stocks, Hallett worries it could run into liquidity difficulties in employing the rapid turnover strategy as it approaches $1 billion in assets. It becomes more difficult to trade quickly and efficiently when dealing with larger positions, he says.
@page_break@Robitaille also looks for opportunities in firms for which he expects the dividend to rise but this expectation is not reflected in the price. “We’ll play around the edges of a core position,” he says. “If the price gets ahead of itself, we may sell some but keep most of it because we like the long-term outlook. If the price is lagging, we may increase the weight to take advantage of that. The key is to stay disciplined to our GARP style. We don’t buy if what we expect to happen is reflected in the price.”
Robitaille likes to meet with management of every company held in the fund’s portfolio once a year, either one on one or in a group. He says these meetings allow him to pick up on non-verbal cues.
“If part of the operation is not doing well, managers may try to give you the same reasons they give everyone else,” he says. “But in a meeting, we can see if they are nervous or avoiding eye contact. The tone of voice and body language can help you judge or validate what management is saying.”
Robitaille enjoys travelling with his girlfriend and finds travel often gives him new perspectives on investing. He returned from a recent trip to China “with a totally different opinion.” He saw a lot of con-struction underway, but expects China will have too much production capacity at some point. So, he’s prepared to become defensive on Canada’s resources sector some time in the next 10 years, as China’s demand for raw materials eases. IE
AGF Dividend Income Fund an above-average performer
Manager Marc-André Robitaille forges his fund’s track record with research and a personal approach to company management
- By: Jade Hemeon
- October 3, 2007 October 30, 2019
- 13:30