Jean-Francois Tardif, who produced 19 percent annual returns from 2004 to 2009 buying commodities shares for Sprott Asset Management LP, says he now favors “boring” stocks such as HealthLease Properties REIT and Enbridge Inc., the pipeline operator.
He’s focusing on income preservation at Timelo Investment Management Inc., a firm he started in Aurora, Ontario in March, because he says the bull market in commodities is over. Tardif invested in junior energy and gold companies before leaving Sprott in 2009.
“The world was great then,” said Tardif, whose firm was hired to manage the C$117.3 million ($119.9 million) JFT Strategies Fund for First Asset Investment Management Inc., which runs about C$2.6 billion. “We had a bull market in commodities, but now we’re deleveraging, and demand isn’t exploding. It will be very hard for commodities to go up substantially.”
Tardif, 43, was named the best Canada-based hedge fund manager by global magazine HFMWeek in 2007. He left to spend more time with his family and to lower his eight handicap in golf, Tardif said in an interview at Bloomberg’s Toronto office.
His new fund features fixed-income products, with seven of the top 10 holdings in government and corporate bonds at the end of August, including debt from Shoppers Drug Mart Inc., BMW Canada Inc., and CI Financial Corp. About 40 percent of the fund is in fixed income. Tardif expects to reduce those positions as he builds the fund.
“I’d never invested in fixed income before in my life,” he said. He is also buying convertible bonds, a fixed-income product which allows the holder to convert the securities to equity. He also takes short positions, allowing him to bet against a stock by borrowing shares and selling them, aiming to profit by repaying the shares at a lower price. The fund is restricted to no more than a 15 percent position in a single security.
Three of his equity positions -- HealthLease, Enbridge and Badger Daylighting Ltd. -- are a change from the junior gold miners and oil and gas explorers he owned in his Sprott days.
“I used to not care if a company gave a dividend or not, because my goal was for stocks that would double in three or four years,” he said. “Now it’s more about income and making sure if something goes bad in the world economy you don’t go down 80 percent.”
With his new fund, Tardif’s equity strategy is to seek companies in Canada, the U.S. and elsewhere that generate income with strong free cash flow, backed by a solid balance sheet and a “safer” track record.
Calgary-based Badger Daylighting, which provides excavating services, had flat revenue and earnings through the 2009 recession and is now expanding, Tardif said. Its shares have risen 74 percent in the last five years and fell 1 percent to C$28.50 in Toronto.
Another favorite is DirectCash Payments Inc., a Calgary-based bank machine and prepaid phone-card company that operates in Canada, the U.S. and Mexico. Tardif wouldn’t disclose if he owns the stock or plans to buy. It has risen 19 percent this year, compared with a 2.3 percent gain in the benchmark S&P/TSX Composite Index.
In the oil industry, Tourmaline Oil Corp., a Calgary-based oil and gas explorer and producer with a market value of C$4.9 billion, is a name that he doesn’t own but would buy at the right price.
Tardif said investors shouldn’t expect the same kind of returns managers generated before the global financial crisis.
“If boring is safe and gives us a decent return, I don’t mind calling it boring,” he said. “But that doesn’t mean it will stay that way forever.”