2 weeks Ago
Sam Baldwin, senior portfolio manager at Guardian Capital LP. ANTHONY NUSCA/The Globe and Mail Sam Baldwin was studying economics and Mandarin Chinese when he landed a summer job in Taipei with an insurer. It was in 1997, when an Asian financial crisis hit, turbocharging his interest in stocks as he wondered how this market-roiling event could occur.
His career began in London on an Asian equity fund, which took an index-agnostic strategy, and he was compensated for picking stocks that could outperform their local markets. In 2007, he joined Guardian Capital’s quantitative global equity team. Baldwin’s $115-million Guardian Canadian Focused Equity Fund has outpaced the S&P/TSX Composite Total Return Index since the F series began in 2019.
We asked the portfolio manager why he doesn’t own Canadian banks and likes Fairfax Financial Holdings. What is your strategy to outperform the index? We are index agnostic, so we try to populate the portfolio with asymmetric opportunities—that is, stocks with more upside potential than downside loss. We own 15 to 20 Canadian stocks and focus on quality companies that can grow and be profitable through a business cycle.
Unlike the index, which is skewed more to financial and resource companies, we diversify across businesses. Why don’t you hold Canadian banks? We don’t have to invest in banks because they are big in the index. We did once with Royal Bank from early 2021 to 2023, but sold it to buy MDA Space, a maker of satellites that has done well.
In our framework, banks could continue to do well or be vulnerable to a pullback. Bad loans could tick upward, which is a headwind for profitability, while bank valuations now aren’t particularly attractive. Given that Agnico Eagle Mines is a top holding, how does gold fit into your strategy? The gold price swings around, but it also performs well in periods when defence is required.
Uncertainty from the U.S.-Canada tariff war has been one tailwind.
We also see diversification value in gold, while valuations of miners have become cheaper. We like Agnico Eagle because it is large and operates in safe jurisdictions like Australia, Finland and predominantly Canada. We don’t use a price in the US$3,000-per-ounce range for its gold production, but a conservative estimate of US$2,350 per ounce.
In 2024, your fund gained 38.2% versus 21.7% per cent for the index.
How did you manage that? MDA Space, AtkinsRéalis, Fairfax Financial Holdings, Brookfield and Capital Power performed well. But we had also decided, as interest rates climbed quickly in 2022, to build a more defensive growth position. We avoided traditional defensive stocks, such as telecoms, pipelines and real estate investment trusts, because they faced an expensive cost of capital to grow.
Instead, we bought capital-lighter, defensive growth names such as TMX Group, Fairfax Financial Holdings and Loblaw. Fairfax Financial is a bit under the radar. What’s the attraction? This property and casualty insurer has a solid underwriting track record and a large portfolio of securities.
Its chief executive officer Prem Watsa gets a lot of attention for his corporate purchases, such as BlackBerry, but the overall portfolio is often overlooked. Fairfax Financial is highly profitable, and the return from its investments has been lifted because a large part is in fixed-income securities earning higher interest rates. Unlike other business models, rising rates were a tailwind.
Its stock also trades at a low price to book value. Given the tariff war launched by Donald Trump, what is your outlook for the Canadian market? We are cautious but remain fully invested even if the economic headwinds stiffen. There has been no portfolio change in the past year or so without thinking about the potential for Trump to be elected, and the spectre of tariffs.
We have sold names based on valuation and bought businesses that are mostly in-market service providers versus sellers of goods across borders. They include convenience-store operator Alimentation Couche-Tarde; collision repair chain Boyd Group Services, which gets 90% of sales from the U.S.
, and specialty insurance provider Trisura Group. It doesn’t mean that the tariffs can’t hurt the economy or cause headwinds for some of our companies, but their valuations are not priced for perfection. Your time is valuable.
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