By Evelyn Juan
--Lekkerkerker sheds off all life insurers and RIM shares
--Bullish on casualty and property life insurer Intact, dollar chain store Dollarama, and Toronto-Dominion
--Aims to find companies with non-cyclical growth
TORONTO (MarketWatch) -- For Darren Lekkerkerker, a fund manager at Fidelity Investments Canada, knowing when to shed shares in Research In Motion Ltd. (RIM.T, RIMM) and life insurers Sun Life Financial Inc. (SLF.T, SLF)and Manulife Financial Corp. (MFC.T, MFC) comes from his knack of avoiding sectors that he sees would be in trouble long-term.
Early last year, he sold all of Sun Life and Manulife shares held by the C$6.5 billion Fidelity Canadian Balanced Fund that he manages. Early this year, he sold all of the RIM shares.
"It's very, very hard for life insurance companies to make money at the very low interest rates today," said Lekkerkerker, who picks stocks for the equity side of the fund, which is rated four star by Morningstar Canada.
As for Research In Motion, the company's declining fundamentals and unpopularity of Blackberry phones against Apple Inc. /zigman2/quotes/202934861/composite AAPL +1.62% or Google Inc.'s /zigman2/quotes/205453964/composite GOOG -0.27% Android phones has been troublesome. The Waterloo, Ontario-based company is expected to launch the QNX operating system but Lekkerkerker says investors might still have a difficult future given the disappointing sales of PlayBook, which runs on QNX.
The decision to shed off the companies is a result of the firm's investment process, which allows Lekkerkerker to predict what could be the pitfalls ahead. "We meet with the CEOs...we know what's going on, and we know the challenges," Lekkerkerker said.
The fund holds almost 45% equity and the rest is in bonds and cash. The equity portion is invested in more than 70 companies.
Lekkerkerker's top buys include Intact Financial Corp. , the number one property and casualty insurer in Canada that Lekkerkerker bought in early 2010. He also likes Dollarama Inc. , the top dollar store operator in Canada, and sees big potential in the firm's plan to add around 50 stores a year, scanners in its stores, and C$2 merchandise. Lekkerkerker is generally cautious on banks, except for Toronto-Dominion Bank /zigman2/quotes/202133558/composite TD +0.98% , which is the fund's top holding.
Fidelity Canadian Balanced Series B fund outperformed Morningstar Canadian Balanced 50/50 index's returns on a one-year, three-year, five-year, and 10-year basis, according to Morningstar Canada data as of Oct. 19. The fund's year-to-date and one-month performance losses are currently greater than the index but Lekkerkerker said they are focused on long-term growth.
"With every stock that I buy, I have a clear and concise investment thesis," Lekkerkerker said. "I continually like to test that thesis and if I no longer have conviction on that thesis, then I'll sell the stock."
Lekkerkerker aims to find companies with non-cyclical growth, pays strong dividend yield, and are still able to outperform the market even in the downturn. "Growth will be the premium if its scarce," he said.