Canadian bank headquarters stand on Bay Street in Toronto on Monday August 29, 2011. Bay Street is the centre of Toronto's Financial District and is often used by metonymy to refer to Canada's financial industry Photographer: Brent Lewin/BloombergBrent Lewin/Bloomberg
Most fund managers would do almost anything to spend time with publicity-shy Prem Watsa, considered by some to be Canada's answer to Warren Buffett, but very few of them get the chance. Vijay Viswanathan, though, can call the investing guru whenever he likes—and Watsa is a big reason Mawer Investment Management's Calgary-based director of research chose the profession he did. "He and my dad used to play bridge," Viswanathan says. "He introduced me to the books of Ben Graham."
But Viswanathan has also made his own mark on the industry. He co-manages the five-star-rated Mawer Canadian Equity fund with the firm's chief investment officer, Jim Hall, and it has a 7.9% average annual return over the past 10 years—first in its category, according to Morningstar. It's also second and fourth over three years and five years, and it won three Lipper Awards last year.
Viswanathan tries to stay modest. "Change the measurement period and maybe it wouldn't look so good," he jokes. But he chalks up the fund's success to three factors. The first: Be boring. Viswanathan likes companies with predictable growth and cash flows, and he wants to buy future cash flow streams at a discount. "It's not rocket science," he says.
Owning companies with operations that are unfamiliar to other investors also helps. That's not always easy to do in the Canadian market—the choice of industries is narrower than it was when Viswanathan started 10 years ago. Looking across all market caps helps. One home run has been Constellation Software, which he bought for $33 a share in 2009 , as it now trades near $750.
Avoiding "torpedoes," as Viswanathan calls bad stocks, is important too. He says (proudly) that he's never owned BlackBerry, Sino-Forest or Nortel. "If it's not a wealth-creating company or we can't wrap our heads around valuation, then we won't invest in it," he says.
These days, Canadian valuations are stretched, and Viswanathan is holding more cash than usual. But he has bought banks and insurers recently, which could benefit from further interest rate hikes. Wherever the market goes, though, he'll keep doing what he's always done. "We'll be boring and make money," he says.
Viswanathan's top stock picks
Royal Bank of Canada (TSX: RY)
With a 5.2% weighting, RBC is the largest holding in Mawer's Canadian Equity fund. Viswanathan likes the bank—he holds others too—because financial institutions tend to benefit more than other sectors in rising interest rate environments.
Canadian National Railway Co. (TSX: CN)
The railroad is a perfect example of a boring business. It moves goods from place to place, and that's about it. Improving industry dynamics, a solid management team and a dominant position in North America make it a must-own stock for Viswanathan.
Canadian Natural Resources Ltd. (TSX: CNQ)
Viswanathan says the oil and gas producer is very well run and will benefit as the global economy improves. With oil prices hovering between $45 and $55 (U.S.), the company should generate enough free cash flow to pay down debt or raise its dividend.