Investment Style

All equities are large capitalization stocks and good quality.

Ian Osler uses a value investment style. He attempts to pay seventy cents for every dollar worth of intrinsic value. Intrinsic value is the long term true net worth of a stock. Determining this value is done by using metrics such as the 10 year average return on equity. Return on equity is an important metric because it reflects the earnings capability of a firm. A 10 year time period is used because it typically includes two business cycles. Price to book value is a second factor that is used to determine value. While it is difficult to purchase stocks selling at book value, Ian attempts to buy stocks selling at less than one and one half times book value.

There is rarely an obvious catalyst to close the gap between intrinsic value and price. Consequently the timing of value realization is unpredictable. Value investing is a "get rich slow" process that rewards patience. Value investing can mean being in a minority, because by definition a value stock can be unpopular.

For value investors, assessing risk is important. There are three types of risk: operational, cyclical, and financial. Ian does not invest in companies that are financially leveraged, so financial risk is normally not present. Operational risk occurs because of increased competition, or a change in the business environment. Good management can address operational risk. Cyclical risk is typically temporary in nature. Good management is often able to reduce costs to the point that even at the bottom of the cycle a company is either breaking even, or only losing a modest amount of cash. Both operational and cyclical risks are acceptable to a value manager.

Ian applies self-imposed investing constraints. He does not buy low quality or marginally profitable companies. He also makes the assumption that when a company is purchased, it will be held for an extended period of time. This requires a very careful decision to be made. Finally, Ian invests within his circle of competence.

There are a limited number of stocks in the portfolio, and they are held for an extended period of time. Portfolio turnover is targeted at 20% per annum, or an average hold period of five years. Finally, Ian does not attempt to replicate indices.

Equities

Ian Osler invests in companies not markets. To this end, equity investment follows stringent criteria and research is conducted in-house. The primary focus of the research is the generation and application of free cash flow. This process concentrates on companies that generate significant amounts of free cash flow. These tend to be businesses that are market leaders, generate consistent and stable corporate growth, have strong balance sheets, and solid management with proven track records.

The manner in which a company applies its cash to the benefit of all stakeholders is of critical importance. To this end, we focus on companies that use their free cash flow intelligently, by investing in fixed capital additions, strengthening their balance sheet, or increasing dividends.

Combining a value style of investing with growth and capital preservation is the underlying goal of Ian’s equity strategy.

Fixed Income

Ian’s fixed income strategy combines the objectives of capital preservation and income generation. Risk is minimized in this area with investments being largely restricted to Canadian federal and provincial government bonds, as well as high quality corporate issues. For taxable portfolios, preferred share investments may also be considered.

Ian undertakes a disciplined approach within the fixed income area, concentrating on investment grade securities and the relative valuations between federal, provincial, and corporate issues. Ian’s investment decisions are influenced by key macroeconomic, financial, and political issues. This approach enables Ian to maximize client returns while minimizing exposure to adverse shifts in the fixed income market.