03.09.2015
By Terry Flanagan

Foyston Practices ‘All-Weather’ Investing

Foyston, Gordon & Payne, a Toronto-based fund manager with C$13 billion under management, adheres to the philosophy that high-quality, sustainable earnings should contribute to producing excellent longer-term value-added results.

Valuation is the key focus and the primary determinant of long-term outperformance. Foyston invests using a strict discipline in an effort to ensure it does not overpay for these earnings.

“We’re fundamental investors,” said Bryan Pilsworth, Foyston’s president and portfolio manager of Canadian equities. “That means we focus on bottom-up stock and bond selection. Our investment philosophy is centered on the value style of investment management. Essentially what that means is we’re trying to find good companies that have been around for a period of time, that are profitable, that generate earnings, and we want to purchase these companies at reasonable valuations.”

He added, “Our fundamental belief is that when you assemble a portfolio of stocks that are trading at lower multiples and have equal or better ROEs than the marketplace, that’s the formula for long-term investment success. It’s a traditional, all-weather, value investment style.”

In equities, Foyston strives to invest in high-quality companies with cheaper valuations than the overall market. In fixed income, it invests in what it believes to be high-quality bonds with attractive valuations.

“Our bread-and-butter is our Canadian equity product,” said Pilsworth. “In that space, we have a Large-Cap product, an All-Cap product, a Small-Cap product, a Balanced strategy, as well as some ‘nichier’ products. We have a dividend income product as well. On the international/global side we have U.S. equity, global equity, and emerging market products. On the fixed income side we have a variety of fixed income products focused on the Canadian marketplace.”

Foyston’s roster of institutional clients include multi-employer pension plans, unions, public companies, and universities. It also acts as sub-advisor for a number of separately-managed account programs. Each sub-advisory relationship is treated as a direct institutional client, with investment management customized to meet the needs of program sponsors and clients.

“Some clients have been with us for over two decades, and have had requirements to invest in Canada, because essentially their liabilities are Canadian-based,” said Pilsworth. “We’ve got a strong core of Canadian investors that want a Canadian investment product. The world is becoming more of a global marketplace in the sense that clients are looking for global solutions as well. That’s something that we’re evolving as well. We have global products right now and we’re continuing to build on that platform.”

Bryan Pilsworth, Foyston

Bryan Pilsworth, Foyston

With current rock-bottom interest rates, pension committees are looking for some degree of income. “In the sense that investors are looking for income and yield, that’s definitely one thing that we’re seeing,” Pilsworth said. “As a result in the marketplace, there’s almost this thirst for yield. The theme in the marketplace is how you position a portfolio so that it does provide income and some of the stability yet, at the same time, benefits when the world starts to resume its growth trajectory.”

Pilsworth, who joined Foyston in 2007 as a senior analyst covering the telecom and financial sectors, became Small Cap Canadian Equity portfolio manager in 2012, and continues to manage small cap strategies in addition to his role as president.

While the firm is supported by an equity interest from Affiliated Managers Group, almost 40 percent of the company is owned by its employees.

“We’re a leading Canadian independent boutique, and one of the things that distinguishes us is our culture of ownership,” Pilsworth said. “About half our employees are shareholders. We believe in an owner-operator mindset. Going forward, the next goal is to focus on other areas where we can add value to our clients and also to grow the firm in a controlled manner.”

Planning for succession is a critical element of Foyston’s strategy to ensure continued delivery of investment management services. The company, which was founded in 1980, is in its third generation of investment professionals. Each key role in the firm has an identified successor(s) with a sufficient differential in age to ensure an orderly transition from one generation to the next.

“The primary mission is to serve our clients with excellence,” Pilsworth said. “We want to make sure that we meet their needs day in and day out. We’re also a people business and so you want to make sure that you get the very best out of your team. Developing the team is really critical as well. And the third is ensuring that we continue to meet the needs of the marketplace.”

Featured image by kovalto1/ Dollar Photo Club

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