26-05-2025
Beating the index with a Canadian equity fund requires some deft handling by Mackenzie Investments' William Aldridge
William Aldridge's interest in stocks began during the 1990s bull market. But riding his bike to work as an analyst for a Toronto investment bank put him on a path to his dream job as a portfolio manager. (Well, that and an MBA.) He often ran into fellow cyclist Robert Tattersall, co-founder of mutual fund firm Saxon Financial. Tattersall invited Aldridge for tea and offered him a spot on his Canadian small-cap team. After Saxon was acquired by Mackenzie Investments in 2008, Aldridge was appointed portfolio manager. His mandate includes the $699-million Mackenzie Canadian Equity Fund, whose F series has outpaced the S&P/TSX Composite Total Return Index over the long haul. We asked why he's bullish on Canada's two railways and likes Bombardier.
What's your strategy to outperform your index?
We don't refer to value or growth but would call it a more opportunistic strategy. Key to our philosophy is patience to get the timing right. Markets are noisy and volatile, so we seek to use that dynamic to our advantage. We manage risk by diversifying by market-cap weightings and sectors. We also aim to mitigate risk by not chasing high-quality winners trading at high multiples. We may own U.S. equity exchange-traded funds to gain easy exposure to high-quality technology and health care names, which are limited in Canada, and to small-cap stocks for more diversification.
What's your outlook for the Canadian market given the tariff threats and hikes by U.S. President Donald Trump?
We are bullish long-term but, understandably, sell-offs in the market give people little comfort. With the strong market returns over the past couple of years, it has been more challenging to find good ideas for our mandates. If the market is selling stocks inordinately because of tariff worries, that becomes an opportunity for us.
Why are CPKC (formerly CP Rail) and CN Rail top holdings if tariffs can hurt volume growth?
We recently raised our weightings in Canadian railways because their stocks came on sale as investors became fearful around tariff risk. But railways are great businesses. They have excellent pricing power because no new ones are being created. It will likely be challenging from a volume perspective in the short run, but they are resilient companies. Their stocks have been trading at compelling valuations, and we think that will reward us over time.
Your fund's gold stocks have benefitted from the metal surging to the US$3,000 level. What is your outlook for the sector?
Gold holdings serve as a degree of protection for investor returns when things are more challenging economically. But the price of gold is very difficult to predict. We get around that by looking at the cost of production, which is much lower than the cost of gold today. We feel that Agnico Eagle Mines, Kinross Gold and Franco-Nevada are the best positioned companies in a very tough sector.
Your fund owns Bombardier, whose stock has been range-bound for the past decade. What's the attraction?
The Bombardier of today is not the Bombardier of old. It was a diversified company that has spun out its train and regional jet businesses. It is now a very focused business-jet company under new leadership. Bombardier and Gulfstream Aerospace are the only truly global competitors in this space, and the barriers to entry are extremely high. For those who find the world a bit scarier and can afford it, flying privately makes a lot of sense. Bombardier has de-risked its balance sheet; it generates significant cash flow and has an attractive valuation. It also has recurring revenue from aircraft maintenance and a small, but growing defence business.
Given that you run an all-cap fund, what is another smaller company that you like?
Small-to-mid-size companies make up about one-third of the fund. We like CAE, which makes flight simulators to train pilots for commercial airlines, business jets and military aircraft. It also gets recurring revenue from providing additional training to pilots every year so they can maintain their licence. Demand for pilots is also growing globally as more people fly often. That's a strong tailwind for the business.
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