4:12 – NAFTA: how does it impact the Mawer Canadian Equity portfolio

• Vijay’s response: Not doing much!
• When you don’t know how things are going to play out, you don’t make any large shifts in the portfolio
• Headlines don’t factor in all the nuances and second/third order potential impacts

7:06 – Talking to management teams about trade tariffs

• Mawer’s taking a wait and see approach
• Things like this don’t happen in a vacuum, companies have options at their disposal to deal with issues like this

9:01 – Energy: Oil and Gas

• Fairly substantial energy weight in the portfolio (~12%) but still underweight on a relative basis
• Vijay emphasizes Mawer’s benchmark agnostic perspective—can’t beat the benchmark if you look like the benchmark
• Vijay discusses Suncor and Canadian Natural Resources – long time holdings in the CEF portfolio (approximately 10 years)

11:00 – Why the commodity business is tough

• You’re a price taker—no say on the price you can sell your good at
• Need to put a lot of capital in up front and you don’t see the cash flows for a long time, sometimes a decade or more
• You’re making assumptions on what kind of returns you’re going to get on future projects and won’t even see the cash flows for another 10 years…and you don’t even know what the price for your product will be in 10 years!
• So why invest in Suncor or CNR? Two reasons

1. For the last decade, these two companies have significantly reduced their cost structure (i.e., instead of getting caught up in the price of oil, rather, how can we increase margins by reducing our costs)
2. Both companies spent a lot of money (capital expenditure) and that cash outflow is behind them–generates a significant amount of free cash flow that is going to be returned to shareholders in the form of dividends/share buybacks, opportunistic acquisitions etc,.

• It’s not just the quality of these companies, it’s their return potential—under reasonable assumptions and what’s being priced in, we think valuations are reasonable.

15:45 – Opportunity set in Canada

• 75% of investible universe in Canada would fall under financials, energy or materials – not a diverse opportunity set
• Aren’t a ton of companies that we don’t know about – if not in the portfolio, they are on the inventory list
• Canadian small cap fund – small caps that have success and grow to market cap size that Cdn large cap can take a position in

17:50 – Shopify—great business model

• Shopify makes money in two ways:

1. Provides mission critical software for small and medium sized business (creates a recurring revenue stream)
2. Takes a “cut” of merchandise that’s sold through their platform

• Valuation
  • conventional metrics may make Shopify look expensive
  • but what’s being priced in is not in the realm of impossible - we think this is one of the better businesses we’ve come across in Canada in a while with a wide range of return potential
  • We can see many scenarios where valuation doesn’t make sense, however, and we balance that in the position size—that’s why it started in the portfolio at a much smaller weight

20:50 – Insurance companies takeaways

• Lifeco’s are misnamed – they are really financial conglomerates (and banks too for that matter!)
• The wealth management business is where a lot of the potential growth will come from
• Growth and profitability is primarily from outside of Canada (Manulife)
• Valuations look attractive

25:40 – One Mawer thought: The ebbs and flows of Cricket and investing