Manager Monitor: Tye Bousada- EdgePoint Wealth Management Inc.

Bousada, a portfolio manager and co-founder of Toronto-based EdgePoint Wealth Management Inc., has co-managed the fund, with portfolio manager and co-founder Geoff MacDonald, since 2008. The duo is also responsible forEdgePoint Canadian Portfolio,EdgePoint Canadian Growth & Income andEdgePoint Global Growth & Income.

They jointly accepted the award for Morningstar Foreign Equity Fund Manager of the Year at theMorningstar Awards gala in November. Bousada credits the five-member investment team, including himself, for the recognition. “It’s definitely not just the Geoff and Tye show.”

Bousada has a hard time “pegging our style into value or growth” in the team’s bottom-up investment discipline. Using quantitative and qualitative analysis, the focus is on identifying a business that is going to be bigger in the future, without paying for that growth today. The team considers strong balance sheets and strong free cash flow to be essential.

With no constraints across sectors or geography, says Bousada, the team spends an “enormous amount of time” focusing on diversifying by different ideas whose performance will be non-correlated with each other.

“Most people define risk as volatility,” says Bousada, “but the real risk we face is if our proprietary insights are wrong. We’ve made mistakes, but when we make mistakes, they’re isolated to that one business idea.”

EdgePoint portfolios tend to be concentrated in about 30 names. An individual stock usually does not exceed a 6% weight in the portfolio.

The stock-specific strategy has resulted in a current weighting of about 72% in the U.S. “You can’t just look at our geographic allocation,” says Bousada, “and assume that the head office in the U.S. reflects the business.”

For example, one of the fund’s largest holdings is Wabco Holdings Inc. (NYSE:WBC), a provider of electronic and mechanical products for commercial trucks and car manufacturers. “Wabco is classified as a U.S. business,” says Bousada, “but over 50% of their revenue is generated from outside the United States.”

In an economic climate where safety regulation is increasing, “Wabco’s in the sweet spot,” of being able to offer the technology in a growing market and benefit from the greater importance placed on safety, Bousada adds. “So there’s this tailwind; they’re going to be in a position to grow their business irrespective of what happens to the economy over the long run.”

A recent addition to the portfolio is U.S.-based Realogy Holdings Corp. (NYSE:RLGY). The largest real-estate broker in North America, it owns brands like Century 21. “One in five homes that are transacted in the United States go through their network,” says Bousada.

Realogy Holdings makes money by leasing its brands and receiving a percentage of the real-estate sale, and also by offering brokers an office and the technology to go along with a brand. “It’s a gorgeous business,” says Bousada, “because there’s no capital employed and it’s a business that is essentially free cash flow.”

About nine months ago, people started to get worried over the recovery in U.S. housing and the stock fell in price. “Assuming that their revenue only grows at 3% a year,” says Bousada, “you can make about 10% owning Realogy over the long term of five to 10 years.”

A native of Cowansville, Que., Bousada, 43, graduated with an honours business administration degree from the University of Western Ontario in 1993. After graduation, he joined Proctor & Gamble Inc. as a salesman and gained knowledge in the consumer-products industry.

In 1996, after developing an interest in investing, Bousada joined the Ontario Teachers’ Pension Plan Board as an equity analyst. Before long, he worked his way up to become portfolio manager of a Canadian portfolio.

Three years later, Bousada was recruited by Bob Krembil, who headed the then-named Trimark Investment Management Inc., a predecessor firm of Invesco Canada Ltd. In 2000, Bousada was promoted to co-manager of Trimark Fund, and became the lead manager in 2004.

Aspiring to be an entrepreneur, Bousada left Invesco in January 2008. He then helped found EdgePoint Wealth Management and launch Cymbria Corp., a closed-end fund, along with colleagues MacDonald, Patrick Farmer and Krembil.

Cymbria holds about a 20% stake in EdgePoint Wealth Management, which manages just over $7 billion in assets, including institutional accounts. EdgePoint’s investment team and other staff co-invest with their clients, with their personal holdings in EdgePoint funds totalling about $80 million.

Over the past five years ended Nov. 30, the 5-star Morningstar EdgePoint Global Portfolio returned 15.5% compared with the median 10.2% return in the Global Equity category.

Looking ahead, Bousada’s expectations for fund performance are more modest. “I think a good return going forward would be somewhere in the 7% to 9% range,” he says. “What we’ve been able to achieve over the last six years likely won’t be able to be replicated. We started in 2008 when the markets were lower in terms of valuation than where they are today, so it’s only reasonable to expect lower returns in the future.”