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Mutual Fund News

The long and short of it


President and chief investment officer,

Picton Mahoney Asset Management, Toronto

Here's a motoring tip: When the steering wheel just turns loosely in your hands and doesn't affect the car's direction, it's time to get the old jalopy serviced. Yes, it pays to look out for little signs. Fund manager David Picton has stayed right on track lately, still maintaining strong returns for his investors in roiled stock markets. How? He's become pretty good at spotting the fluttering butterfly wings that can presage turns in individual stocks. "Changes at the margin tend to occur in one direction," he says.


Picton is a statistics-chawin' quantitative money manager, but he says he's "quant-assisted rather than quant-driven." He works with a team of 10 other stock pickers and two traders. He also taps other sources besides spreadsheets, like actually talking to corporate executives. Hardline quants, he cautions, can miss out on chances because "they're just looking at data."


After eight years as head of quantitative research at RBC Dominion, Picton shifted to mutual-fund start-up Synergy Asset Management in 1997. Bill Holland's ravenous CI Financial swallowed Synergy in 2003, and Picton co-founded Picton Mahoney with global specialist Michael Mahoney, a year later. The firm now manages about $4.5 billion, and Picton still helps steer several CI funds, the biggest being the $1.4-billion CI Synergy Canadian Corporate Class.


The first sign that a company's financial results are improving is often the best time to jump, because executives "have done all the heavy lifting," says Picton. Another favourite omen: analysts raising their earnings forecasts. More good news often follows, and it helps to trade before the rest of the market really "captures information."


Picton Mahoney has also thrived at the dark art of betting against stocks that look overpriced. The firm launched several hedge funds in 2005 that often short-sell stocks to help ride market ups and downs. Picton relishes "pair" trades--buying a favoured stock while shorting a less-promising one in the same industry. The goal is to profit from accurate stock selection, regardless of what happens to the sector. Recently, he's bought mid-tier gold producers such as Red Black Gold and Detour Gold, while shorting giant Barrick Gold. Barrick faces languid production growth as costs climb. But shorting can be perilous. On the first sign of a rally, he says, the "most beaten-up stocks tend to get the biggest lift."


Picton unwinds by coaching youngsters' high-level hockey (he has three teenaged kids). "They couldn't care less if you had a bad day in the markets." And he wields an axe in a Bay Street rock band called, um, Unitholder. His rockin' idols include Van Halen and Foo Fighters. "That is a total kind of energy release." So far, he's been hitting all the right riffs. --


CI Synergy Canadian Corporate Class

1 year %5 year %
Average annual compound returns (to Feb. 29, 2008) -0.517.7
Average Canadian-focused equity fund-3.512.3

© 2007 The Globe and Mail. All rights reserved.

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