Melanie Blue is holding up the long term gains of her Canadian stock portfolio.
Her $528.7-million Highstreet Canadian Equity Fund produced a 9.3-per-cent average annual compound gain, almost double the 5.0-per-cent average annual compound gain of the S&P/TSX Total Return Index for the ten years ended April 30, 2009. That large outperformance helps put in perspective the 34.4-per-cent decline of the fund’s net asset value for the 12-months ended April 30, slightly more than the 30.7-per-cent drop in the benchmark in the same period. Ms. Blue, a chartered accountant and vice president for investments at Highstreet Asset Management Inc. in London, Ontario, has been part of the management team of the ten year old fund since Feb., 2001 along with chief investment officer Shaun Arnold.
“We stick to a multifactor model that gives weight to growth of earnings, price to earnings, and rate of reinvestment of earnings back into the business,” Ms. Blue said.
“We look for higher earnings growth rates than those of our benchmark and lower valuations. We also compare stocks to their industries in order to select the best of the relevant breed. When we see deterioration in our key metrics, we consider sale.”
Research in Motion Ltd. in a Waterloo, Ontario company that dominates wireless text messaging space. Shares purchased at an average cost of $55.60 have recently traded at $85.85. In spite of today’s recession-focused IT markets, RIM has dominated the corporate wireless e-mail market and has been moving into the large but relatively untapped consumer market that has, to date, been dominated by Apple’s iPhone. RIM has also generated strong sales growth with strong margins and rising profitability, Ms. Blue said. Earnings for the year ended Feb. 28, 2010 should rise to $4.77 from $4.09 a year earlier and $2.29 for 2008, she added.
EnCana Corp. is a Calgary-based oil and gas producer. Shares purchased at an average cost of $52.48 have recently traded $59.37 with a $1.60 annual dividend equal to a yield of 2.7 per cent. EnCana has suffered a recent decline the rate of its earnings growth as energy prices have trended down. The company’s profits have also declined, yet compared to peers, EnCana remains attractive. Earnings for the year ended Dec. 31, 2010 should decline to $3.00 from $4.10 a year earlier and $6.05 for 2008, she predicted, noting that some of the company’s exposure to falling energy prices has been covered by forward sales of natural gas, which account for more of EnCana’s revenue than oil. Those hedges mean that EnCana will have better earnings than companies which are fully exposed to the spot market, Ms. Blue suggested.
National Bank is the smallest of the big six chartered banks. Shares purchased at average cost of $48.16 have recently traded at $50.30 with a $2.48 annual dividend equal to a yield of 4.9 per cent. National Bank’s price earnings ratio, 8.5 on forward earnings, is 17 per cent below the chartered banks’ 10.3 average p/e, Ms. Blue noted. Earnings for the year ended Oct. 31, 2010 should be flat at $5.25 per share, about the same as $5.26 a year earlier. However, National Bank has a lower valuation as well as less exposure to U.S. credit markets than the other big chartered banks, Ms. Blue said.
