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Value investor looks for stocks that can deliver rewards
Portfolio manager Marian Hoffmann looks for shares of companies she believes are underpriced and waits for them to rise. But at Sionna Investment Managers, ‘we look at things differently,’ she says of her ethnically diverse, female-led team
By: DIANNE MALEY
Date: October 6, 2017
For Marian Hoffmann, inspiration struck when she was still in university studying economics. There she found herself drawn to the ideas of Yale University’s legendary money manager David Swensen, who was teaching a course in portfolio management. Mr. Swensen runs Yale’s successful $25-billion-plus endowment fund.
In her early 20s, Ms. Hoffmann had found her calling.
“He was a fantastic, exciting person – interesting and inspiring,” Ms. Hoffmann recalls in an interview. “I admired his thoughtful, long-term approach to investing, as well as his willingness to do things differently than others.”
Mr. Swensen was a great believer in diversification. He pioneered a long-term investment strategy that expanded Yale’s portfolio from stocks and bonds to real estate, private equity, venture capital and other alternatives, according to a 2016 New York Times profile.
After Ms. Hoffmann graduated, she moved to Germany for a year to be close to her hockey-playing boyfriend, Luke Earl. She worked in a bakery, and later the couple travelled through Southeast Asia. Today, they are married with three children, and Mr. Earl has given up pro hockey to work at a bank.
When she returned to Canada, Ms. Hoffmann began looking for work in her chosen field, but her baked-goods experience fell flat. “No one wanted to hire a person with no relevant experience,” she recalls. After a series of interviews, she met Kim Shannon, a star fund manager who had founded Sionna Investment Managers a couple of years earlier.
“She was willing to hire young people who are curious and willing to learn,” Ms. Hoffmann says. She joined Sionna as an analyst in 2004. “It’s something Sionna still does today. If [young people] are interested and passionate about it, they can pick up the skills.”
At age 37, after 13 years with the firm, Ms. Hoffmann is part of the five-member senior team that manages $4.9-billion worth of assets for institutional and retail investors. Three of the five senior managers are women: Ms. Shannon, president and co-chief investment officer; Teresa Lee, co-chief investment officer ; and Ms. Hoffmann, who is lead portfolio manager for the firm’s focused dividend and large-cap investment strategies. All hold the respected chartered financial analyst (CFA) designation.
For most of a firm’s senior portfolio managers to be women is unusual in an industry traditionally dominated by men. Around the world, men greatly outnumber women as fund managers, according to a 2016 survey by the investment research firm Morningstar of 26 fund managers in 56 countries. In Canada, women comprise just 11 per cent of fund managers.
A look at the names and photos of Sionna’s nine-member research team reveals their diverse ethnic backgrounds, with four being visible minorities. “Look at other money managers. We look different,” Ms. Hoffmann says. “We like being different. We look at things differently. Coming from a different perspective leads to better decision-making and helps us avoid behavioural biases.”
Two-thirds of Sionna’s business is institutional – hospitals, university endowments, charities and pension plans. As well, Sionna manages the equity portion of half a dozen retail mutual funds marketed and sold by Bridgehouse Asset Managers.
Among the characteristics Sionna shares with Yale’s David Swensen is its very long-term approach to investing. Sionna is a bottom-up, value investor, buying shares of companies it believes are underpriced and waiting for them to rise to their intrinsic value, collecting dividends in the meantime. “We hold our names for a long time and do our own research,” Ms. Hoffmann says. “All of us are still analysts at heart.”
The firm takes a team approach to investing and is “always on the lookout for people to add to the team,” Ms. Hoffmann says. “We try to find people who have that balance of being independent thinkers, who stand apart from the crowd, but not just for the sake of being contrarian. You have to be able to adapt your views when things change. Finding that balance is hard to do.”
Each strategy or investment mandate has a lead manager. “I’m the lead for large cap,” Ms. Hoffmann says. “We do value in a lot of different flavours – large cap, small cap, dividend, focused [holding fewer stocks]. I work with a team of four or five others.”
Like Mr. Swensen’s group at Yale, the Sionna team puts their ideas about a proposed investment in writing. “We write very long reports and distribute them to the rest of the team. They read them, then we meet as a group to review them and give feedback,” Ms. Hoffmann says. “Everybody gives their opinions. We always have the most junior person speak first. If the senior person speaks first, the junior one might be afraid to differ. Yet junior people have a fresh perspective. We want to promote that kind of ability to speak your mind.”
While they strive for consensus, they don’t always reach it, so the lead portfolio manager makes the final decision. Sionna’s performance tends to lag in frothy and speculative markets, she says, as it is a value-investing outfit. But the firm’s funds can be expected to do better at preserving capital during weak or declining markets. “They’re well suited to clients who want a smoother ride from their investments.”
So how has the performance been?
“Year to date, I’d say it’s probably been weak,” she says. In the second quarter ended June 30, the Sionna Canadian Large Cap Composite model portfolio was down 1.5 per cent (before subtracting fees), compared with a drop of 1.6 per cent for the S&P/TSX composite index. The softer first half follows a year in which the model portfolio was up 25.5 per cent before fees, compared with 21.1 per cent for the S&P/TSX composite.
That follows a very good year in 2016. “To help put the 2016 performance number into context, Sionna’s outperformance was driven by decisions that we made in the previous two years,” Ms. Hoffman says. “Our investments are long-term in nature and typically take years to play out. We had built up an overweight position in energy and energy-related names in 2015, which hurt our performance in that year when energy was very weak. But those investments subsequently helped drive our outperformance in 2016.” With the recovery in some of the energy stocks last year, “we scaled back some of our positions, which turned out well for us.”
Weakness in Western Canada and company-specific problems have led Ms. Hoffmann and her team to other potential bargains to add to their portfolio: Empire Co. Ltd., parent of Sobeys, and Boardwalk Real Estate Investment Trust. Both are beaten-up stocks that could reward a patient investor in the years to come.
Where Marian Hoffmann is finding value
Empire Co. Ltd.
This is a classic case of a good company that has fallen on hard times, Ms. Hoffmann says. Empire, the owner of Sobeys stores, faced “execution issues” after its $5.8-billion acquisition of Canada Safeway stores in 2013. “They mishandled the integration of those assets,” she says. Soon after, the economic fallout of the oil-price drop made the situation worse.
“The Safeway stores are good strategic assets,” she says. “Sobeys didn’t have a big presence in the West.” Now, with a new management team in place, “the shelves are stocked, they’re getting prices to where they need to be, and they’re improving internal workings as opposed to shutting down stores.”
The Sionna team stepped in carefully. “We started with a small position and built it up in 2016 and the early part of this year,” Ms. Hoffmann says. The Sobey family still has a “very considerable position” in the company. “They’re involved in what is going on, they’re on the board. We like it when the people making capital decisions are aligned with shareholders. They take a long-term perspective. That’s the kind of thinking we like to align ourselves with.”
With its portfolio of apartment buildings, Boardwalk is in a “very attractive part of the real estate market,” Ms. Hoffmann says. Revenue from apartment buildings tends to be more stable than office or retail space. But most of the REIT’s portfolio is in Western Canada, particularly Alberta, so weakness in that part of the country has put pressure on rents and occupancy rates.
Indeed, a year ago, Boardwalk REIT was the most shorted stock in North America, according to Bloomberg. But the well-regarded management team owns more than a quarter of the company, so their interests are aligned with other shareholders, she says.
“They’ve proven over time that they allocate capital well and run the business well,” Ms. Hoffmann says. “When things are weak, they buy interesting assets. We like that kind of countercyclical thinking.” The stock is trading below Sionna’s estimate of intrinsic value, she adds. “We are building a position and will wait for things to improve.”
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