Returning to the power of small

“I’m a competitive guy, and I love the fact that you are measured in this business,” says Taylor. “Anyone can spin a great story, but I like to know where I stand in relation to someone else.”

Taylor was fortunate to land a plum client shortly after he set up shop. In March 2012, IA Clarington Investments Inc. of Toronto named Taylor the subadvisor on two new mutual funds, IA Clarington Focused Canadian Equity and IA Focused Canadian Balanced. Taylor also has been hired by Brompton Funds Ltd. of Toronto to manage Taylor North American Equity Opportunities Fund, a closed-end fund that trades on the Toronto Stock Exchange.

(Taylor’s agreement with IA Clarington prevents him from managing other mutual funds, but he may manage closed-end funds, institutional money or private accounts for high net-worth clients.)

As well, Taylor’s firm is launching a North American equity fund to be sold by offering memorandum. This fund will permit the use of a broader collection of strategies, such as investing in private companies, leverage and short-selling.

Taylor has resurfaced at Taylor Asset Management after making his name by managing portfolios for Dynamic, a subsidiary of DundeeWealth Inc. of Toronto, owned by the Bank of Nova Scotia since 2010. At Dynamic, Taylor was the lead portfolio manager for several Canadian equity funds between 2002 and 2011, during which time he won 15 Lipper Awards, among other accolades.

When Taylor joined Dynamic in 2002, he started with AUM of about $300 million. By the time he left nine years later, he was managing $8.5 billion in AUM across 14 Dynamic funds. The spur for his departure in 2011 was the sale of DundeeWealth to Scotiabank, which Taylor feared would tighten the free rein to which he was accustomed.

At age 49, Taylor has a lot of energy to devote to his new enterprise. He is divorced with two grown children, a daughter, 22, and a son, 20, so there are fewer family demands on his time, he says, than when his children were younger. He keeps fit by exercising at the gym every day. Although he thinks about investing constantly, he finds some relaxation by playing piano in his condo.

Taylor sees parallels between his solo venture and his time at Dynamic, except that he now has a long track record and more experience. Once again, he is starting with a small pool of capital after a difficult period in the stock market. The small size of the AUM allows him to be nimble and flexible to trade shares of companies of all sizes, and several years of lacklustre market returns have created opportunities to find attractive pricing.

“It’s exhilarating to start a small firm from scratch,” Taylor says. “It’s the same kind of entrepreneurial spirit and independence that we had in the early days at Dynamic. It’s like getting a second chance – I’m reliving my life, but with less hair this time.”

Prior to Taylor’s stint at Dynamic, he was with Altamira Investment Services Inc. of Montreal, managing that firm’s group of value-oriented funds. From 1991 to 1995, Taylor managed Canadian equities for the Ontario Teachers’ Pension Plan. But Taylor’s value roots date back to his first job, at Confederation Life Insurance Co. in Toronto beginning in 1988. Although Taylor had an MBA from York University, he was unfamiliar with the job of an analyst. The job description, which included visits to mines and factories, sounded like a series of “exhilarating field trips,” he recalls.

“Confederation Life was a great training ground for value investors,” he says. “There was no Internet in those days, [so] we visited companies, talked to their competitors, wrote reports and got grilled on them. You had to defend your thesis, and I learned how to be an independent thinker.”

Taylor searches for companies that are overlooked by the market, investing in a concentrated mix of securities. His IA Clarington funds are primarily Canadian-focused, with the flexibility to hold up to 49% in U.S. and global securities. “There are strong, growing companies available,” he says, “that are world-class, paying dividends and trading at great valuations.”

Taylor has been finding value in large-cap names, and he hasn’t had to increase risk by looking for ideas among the small-caps. He assesses potential downside risks, and likes companies to have a catalyst in the works that will lead to broader recognition of their value. Every stock, he says, should have the potential to produce a 50% return during a three-year period.

“There’s a lot of herd mentality in the investment business,” Taylor says. “I’m wired differently. I am looking for ideas among stocks that are trading at 52-week lows. I want to build funds that don’t look like anyone else’s or like the index.”

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