On Monday, Invesco celebrated the 30th anniversary of the Trimark Fund. It is a landmark fund—simply surviving three decades makes it stand out in an industry with several thousand offerings, many without a 10-year track record.
Throughout the years, managers of the fund have come and gone, but the principles underlying its investment style are hardwired into the corporate culture, according to Dana Love one of the four managers on the flagship fund.
“The investment process is consistent across the Trimark franchise,” Love says. “When you boil it right down, what we are attempting to do with the Trimark investment discipline is to buy good companies, with good underlying fundamentals and economics, for less than they’re worth.”
It’s a highly flexible global equity mandate, with no restrictions regarding capitalization, sector or geography. In theory, its investment universe encompasses every publicly listed company in the world.
The Trimark Canadian Fund takes a similar approach, though focused on the Canadian market. Foreign equities are not forbidden, however, and its managers can place up to 40% of assets outside of Canada.
He admits this requires a contrarian streak, and that the fund is sometimes out of favour for making “unpopular investment decisions” when the managers see value in a beaten-down stock.
Love points out buying unpopular stocks—or declining to buy “the next big thing”—poses career risk in some investment shops. The conventional wisdom that it’s better to lose money conventionally than make money unconventionally still applies. Not so at Invesco, say Love.
“We have a culture here that fosters…the ability to make those unpopular decisions.”
The fund still runs a concentrated portfolio, with management preferring to know the companies it owns intimately, rather than viewing each investment simply as a piece of paper—or data—to be traded on the market.
“The thought process behind that is no different than if we were going to buy a private company in its entirety,” he explains. “You want to understand the business, the products, the services, the competition…and ultimately why that company is going to be sustainably a better proposition than all of the other companies it competes with.”
Don’t chase, hold
It sounds like a simple concept, but he points out many investors stray from this discipline, seduced by momentum plays. Chasing past growth in a stock typically goes hand in hand with another common temptation in today’s markets: short-term investing.
“Every time we make an investment decision with respect to buying or selling a company, we’re thinking in terms of years rather than months or quarters,” Love says. “Increasingly that’s a differentiator. There’s hard data that shows the average holding period for a stock is now less than two months among institutional investors.”
In the 1970s, he says the average holding period was about two years; in the 1950s, it was up to five years. In contrast, Love says, the typical holding period across the firm is about five years, but many companies have been held for more than a decade.
“It’s time arbitrage,” says Ian Hardacre, manager of the Trimark Canadian Fund. “I’ll buy a business because I like it, [even if] it’s out of favour; it might have a short term issue. It may be 12, 24, 36 or 48 months before my thesis is realized. Often it takes three to five years.”
The focus on the management team is especially important on the Canadian fund, says Hardacre, because the quality of businesses in Canada tends to be below average, compared to the rest of the world.
“When you’re running a business that would be below average on a worldwide basis, you need a really top quality management team.”
The Canadian mandate is able to invest up to 40% of its assets in foreign securities, providing a safety valve in case there are few opportunities in the relatively small domestic market. This allows the fund to remain highly invested, rather than building up its cash position when selling securities.
“Cash is just a function of process,” Hardacre says. “If you can’t find something to invest in that meets your criteria, then you hold cash.”
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