Miles away from either Bay Street or Wall Street a quiet little fund management firm can be found in Halifax.  They walk quietly but carry a big stick in terms of performance.  Seamark Asset Management Limited is far from the stars one day, dogs the next hoopla that is so paramount in our high profile fund management companies.  Clairington Mutual Funds patiently searched for someone to manage the majority of their Canadian Equity Funds and they have found something unique in Seamark in what is considered by most of us to be an over crowded fund market.  I recently had the opportunity to speak with Peter Marshall, founder of Seamark and here is an excerpt of what he had to say:  

Seamark isnt a household name on Bay Street.  Can you tell me a little bit about your history?   

We have been managing money since 1982 and we have built our business one client at a time.  Our first client is still a client and has enjoyed an annual compounded rate of return of about 17%.  We started with under $500,000 and today we manage over $4.8 Billion.  Seamark is 1/3 owned by the investment team and 2/3 owned by Manulife, formerly North American Life.  Manulife does not participate in the activities of our company.  We do manage some of Manulifes pension money but they are not a dominant client of ours.

  Describe your investment style.

  First of all we a take a long term view to picking stocks.  I cant understand how some managers claim to have a long holding period and the average turnover is three years.  You will find in our portfolios seven to eight years is the normal holding period.  We are consistent and proud of our performance over time.  We are also consistent with our style.  In the 18 years we have not lost one of our managers.  Our mission statement refers to preserving and enhancing and I think those words are in the right order.  We hate to loose money and we know that our clients do too.  

So does that make you a Value manager?

  We have an investment process, starting with our philosophy including our long-term view.  Being long-term investors we dont put too much stake in what the market is doing on an hour-to-hour basis.  In fact, it is almost inevitable that if we buy a stock, it goes down in value.  When we sell it, it goes up in value.  We apply our discipline and we buy and sell within our range.  Rarely do we get in at the absolute bottom or the absolute top as far as share prices are concerned.  That is where patients comes into play.  We have enough experience to throw the towel in as far as market timing is concerned.  We dont pretend to know what the market will do on a day over day basis, nor is it a large factor in our procedure. 

  If you are a long-term investor, why not go for growth.  Over 60% of our portfolios have a growth theme, where they grow above the relative benchmark.  But we are value sensitive, meaning that we are careful what we pay.  We are a bunch of tight fisted Maritimes that like to squeeze nickels into dimes  we dont want to pay too much.  Occasionally we will miss a good opportunity because of our stinginess but we stay out of trouble too.  

We dont exclude typical value names in Canada because there are so few good stocks to choose from in this market but we have a long term growth bias.  So, what is our style? Growth at a reasonable price, I guess would best describe us.  We have a list of about 200 companies that we like if the price is right.  We only hold 45 to 65 names so we look to our team to select the best companies at the best value.

  Can you give me an example or two of how this overall approach works in practice?  

For those who remember 1987 we took a lot of heat from our clients mid year as stock prices were on the rise.  We dont hire you to manage cash, was what they were telling us because we were getting out of many of our equity positions as stock prices headed upwards and out of our comfort level.   

We just dont see value in the market place, was what we told our clients.  For those who stayed with us, they were the beneficiaries of great buying opportunities in the fall.  But we werent largely in cash because we expected the market to fall in October.  It was just that with our bottom up, company-by-company approach, we didnt find companies that were good value until the last quarter after the crash.  At the end of the year our relative performance was top quartile in what turned out to be a bad year for many investors.  

In 1991 we were buying blue chip stocks despite the fact that the prices were falling.  We thought Hewlett Packard was a great buy at $35.  When we bought it, guess what?  It went down to $25.  Most of the quality blue chip stocks that we bought during that cycle went down in price.  We went from 37% equities to over 60% because we perceived good value in the market. Clients thought we were getting it all wrong and had a hard time living with us.  Three years later when Hewlett Packard was trading at $100 it didnt matter exactly what price we bought it at.  Patience paid off.  

In more recent history, we owned Nokita, Ericson and Nortel but through the last couple of quarters they became too rich for our blood and we have been net sellers in 2000.

As the first interviewed manager in the New Year, you get the ominous task of prognosticating what you expect for 2001.  Can you comment on your expectations for the economy going forward?

The objective of the Fed in trying to achieve slower growth is to ensure inflation remains subdued. Over the past three quarters, the U.S. Consumer Price Index has bobbed above the 3% level on an annualized basis. The U.S. central bank (Federal Reserve) may have completed its task of raising short-term administered interest rates to a level where economic growth will moderate.  The Fed, in raising rates 175 basis points over the past 19 months, has been attempting to find an interest rate level that will dampen consumer spending. Certain facets contribute to the decision of whether to save or spend for consummers.  Bank-rolled by the dynamic-duo of rising equity values (S&P 500 has quadrupled since 1991) and escalating house prices (up 50% since 1990), the wealth effect has allowed consumers to spend beyond their incomes and their wildest dreams. However, the Fed has brought an uninvited guest to the party recently, in the form of higher interest rates, in an effort to gear down the consumers engine that accounts for better than 60% of economic growth.

There has been a shift to floating rate mortgages from the time-honoured, more conservative, longer-term fixed rate mortgage. The move to shorter- term mortgages by U.S. and Canadian homeowners has meant that interest rate shifts by the Fed have a much more immediate impact on household cash flows. A normalized yield curve, assigns successively higher interest rates to loans of increasing maturities. In order to slow growth, the Fed has increased the price of short-term money to discourage borrowing and encourage saving. The impact of the Feds rate hikes has ultimately resulted in an inverted yield-curve, which translates into higher mortgage payments to those borrowing short through floating rate mortgages.

Consumers will find that energy costs associated with home heating and vehicle operation may impact on spending as well. With oil prices up 80% during the past 12 months, homeowners may find quite an adjustment to their equal billing energy bills. The increased costs associated with higher short-term interest rates and higher energy prices may impart a blow to discretionary income, as well as home valuation levels. Seamarks interest rate outlook continues to be favourably biased to a continuation of lower rates. The actions already undertaken by the Fed, combined with a more cautious consumer should allow for a continued slowdown in economic activity in 2001. The Feds measured interest rate actions should pave the way for a soft landing, providing a conducive backdrop for lower rates.  Our belief is that the C$ will continue to tread water, or even trend modestly lower, relative to the US$ over the coming 12 months.  

Seamark managed funds are available in pension products such as the Manulife group products.  In a retail product this fund management expertise is available through Clarington Mutual Funds and the Manulife Guaranteed Investment Funds.   Conservative investors would easily accept these funds as they manage to outperform in down markets. 

Younger investors who understand style diversification may be receptive to these funds.  However, impulsive investors may loose patients with the management style of Seamark funds and not be around to enjoy the long-term benefit it they jumped ship too early in the cycle. For more current information please refer to Seamarks website at www.seamark.ca

All contents copyright © Joe Chisholm 2001
E-mail: chisholm@queensbury.com