Long-term view pays off
‘We can’t control the market but we can control the factors around a business’
Managers: Daniel Goodman and Effie Wolle, GFI Investment Counsel
Portfolios: High-net-worth private-client portfolios, Good Opportunities Fund
Description: Concentrated portfolio of high-quality equities and fixed income
AUM: $170-million Performance: 1-year +7.4%, 3-year +12.2%, 5-year +5.1% (Equity Balanced portfolio as of Dec. 31, 2011)
Management fee: 1.35% on first $2-million, tiered thereafter For Dan Goodman and Effie Wolle, strong results are often driven by what isn’t in their portfolios, as opposed to what is. The portfolio managers at Toronto-based GFI Investment Counsel won’t buy a company if they can’t identify what it will look like in a decade.
“If we’re not comfortable with the competitive landscape going out five, 10 or 20 years, we take a pass,” Wolle said. “Sometimes that takes us away from things that look attractive to others, but it saves us from losing money periodically.”
As a result, they’ve avoided troubled companies such as Yellow Media Inc. and Research In Motion Ltd., focusing instead on names with sustainable competitive advantages. For example, Canadian National Railway Co. benefits from being in an industry that has high barriers to entry. Even if someone had the money to build a competing railway, the land would be impossible to obtain.
We’re going to buy a great business when we see the opportunity
“When we’re buying businesses, we can’ t control whether the market is going to go up or down, but we can control the factors around that business,” Goodman said. “To us, that is tremendous risk mitigation.”
The managers’ segregated portfolios typically consist of 13 to 15 equities and 10 to 12 bonds, mostly corporate names in the four- to sevenyear range.
While factors like what is happening in Europe remain very important, Wolle notes that a Tim Hortons franchise owner shouldn’t be worried about Greece’s debt negotiations. Rather, that business operator is concentrating on keeping costs down, ensuring customers and staff are happy and effectively rolling out products.
“With all the things going on around the world, at the end of the day you want management that is thinking about the business today on the ground,” Wolle says. The Good Opportunities Fund is a long-short fund that allocates approximately 75% to equities and the rest in cash, something the managers are comfortable with given the absence of great opportunities.
“We’re not just going to buy market exposure,” Goodman said. “We’re going to buy a great business when we see the opportunity for our clients to make a lot of money. In the absence of that, cash is king.”