“There are other managers that focus on cash, but we really believe that we focus on the right cash. We call this tangible cash flow. It’s our way of saying the real cash that comes to meet the owner of the business”

Patrick BlaiS, Manulife Investment Management

Jakub Sulimierski, Manulife Investment Management

In Partnership with

Steering through economic downturns using tangible cash flows

Understanding the Manulife Fundamental Equity fund: insights from Patrick Blais and Jakub Sulimierski of the Manulife Fundamental Equity team

Read on

Patrick Blais, CFA, FSA

Manulife Investment Management

Jakub Sulimierski, CFA

Manulife Investment Management

Stewart Saunders

Heritage Bank

Christopher Lee

MFAA head credit adviser, Finsure Finance and Insurance

Industry experts

DURING A TIME characterized by numerous unfavorable quarters, amid a sea of investment managers and varied strategies, Manulife's Fundamental Equity Team has set itself apart in the financial market. Having seen ten years, the team at Manulife Investment Management, comprised of senior portfolio manager Patrick Blais and senior investment analyst Jakub Sulimierski, has been unwavering in its commitment to delivering results despite financial market challenges. When asked by WP about the inception of the Fundamental Equity team, Blais recounts how Manulife Investment Management envisioned a "high-quality institutional portfolio manager that could go out to the institutional market, but also bring that expertise into the retail market.” What set them apart was their collaborative approach – “rolling up their sleeves” – where every team member plays an essential role, ensuring that the process is consistent and the risk-return is compelling.

While discussing the team's investment approach, Sulimierski notes that they're "bottom-up fundamental managers." Their detailed approach involves a thorough analysis of financial statements. They don't get swayed by macroeconomic calls, and their investments span sectors, making them truly core. What sets them apart is that downside protection, the returns over the long term, and the consistency with which the fund outperforms its category.

As Sulimierski details, the fund heavily emphasizes Canadian investments, ensuring that 51% of its assets come from Canadian businesses. However, this Canada-focused strategy leaves room for global ventures. Up to 49% of the fund can be allocated outside of Canada. Blais underscores that the market, in their experience, is never universally overvalued. There are always pockets of undervaluation, and their mission is to identify and invest in them. For instance, while they currently eschew gold, utilities, and staples, they find value in sectors like US healthcare. An illustrative example is their investment in McKesson Corp., a US drug distributor. While initially penalized due to its involvement in opioid litigation and perceived as a commoditized business, deeper analysis unveiled growing cash flows and an advantageous position in the biologics sector.

“The first aspect to highlight is downside protection, something we take immense pride in. Over the past decade, there have been instances when we surpassed the index, sometimes by a staggering margin of over 1,000 basis points,” Sulimierski asserts. “Since inception on a rolling 5-year basis, Manulife Fundamental Equity Fund has outperformed its Morningstar category 98.9% of the time, with an average annual outperformance of 277 basis points.”

The Manulife Fundamental Equity fund showcases a blend of analytical prowess and strategic flexibility, allowing it to stand firm even amidst global uncertainties.

Sulimierski candidly expresses the challenges of predicting market behaviors, specifically regarding looming recessions. The voice of speculation has been persistent in the last year and a half, with consistent predictions that recessions are just around the corner. Sulimierski observes, "It's so tough to time the markets." The unpredictability was evident last year when defensive stocks became overpriced as investors sought refuge. At the same time, lucrative tech stocks saw substantial sell-offs, presenting investment opportunities for the discerning investor. Using Oracle Corp. as an exemplar, Sulimierski highlights how market dynamics can be advantageous for those who know where to look. With a decline of over 20 percent in Oracle's stock price in the previous year, their analysis of the stock's valuation and cash generation deemed it a prime investment opportunity.

Sulimierski elaborates on the sectors the fund tends to avoid. They steer clear of capital-intensive sectors and highly leveraged businesses, especially considering the rapid rise in interest rates in recent years. Mining projects, for example, demand massive capital investments, in his opinion, with uncertain returns, which conflicts with their cash-centric philosophy.

While many teams might consign portfolio construction to specific individuals or small sub-teams, this group believes in collective decision-making. It’s evident that the team’s unified approach has been a significant driver of its success during downturns. This is not just about diversifying risk but about enriching the decision-making process with varied perspectives and insights. Prospective clients and partners should recognize the value proposition here. By investing with this team, one is essentially tapping into the collective wisdom of eight dedicated professionals. As Blais summarises, “That's what our clients are looking for, and that's how we're able to deliver that risk-return profile, that consistency, that downside protection.”

Downside protection

Manulife Investment Management is the brand for the global wealth and asset management segment of Manulife Financial Corporation. Our mission is to make decisions easier and lives better by empowering investors for a better tomorrow. Serving more than 17 million individuals, institutions, and retirement plan members, we believe our global reach, complementary businesses, and the strength of our parent company position us to help investors capitalize on today’s emerging global trends. We provide our clients access to public and private investment solutions across equities, fixed income, multi-asset, alternative, and sustainability-linked strategies, such as natural capital, to help them make more informed financial decisions and achieve their investment objectives. Not all offerings are available in all jurisdictions.

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In his role, Patrick is responsible for Canadian core equity strategies. Prior to joining the firm, he was a portfolio manager and analyst at KBSH Capital Management, focusing on international equities, and before that he was a global senior equity and corporate debt analyst at Sun Life Financial. Patrick holds the Chartered Financial Analyst designation and is a Fellow of the Society of Actuaries.

senior portfolio manager, Fundamental Equity team, Manulife Investment Management

Patrick Blais, CFA, FSA

Jakub is a senior investment analyst with the Fundamental Equity team. Prior to joining the firm, he was an equity research associate at BMO Capital Markets, and before that he worked at GMP Securities. Previously, he worked in investment sales at Manulife Financial and as an InvestorLine client consultant for BMO Financial. Jakub holds the Chartered Financial Analyst designation.

senior investment analyst, Fundamental Equity team, Manulife Investment Management

Jakub Sulimierski, CFA

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Heritage Bank

Stewart Saunders

MFAA head credit adviser, Finsure Finance and Insurance

Mark HarChristopher Leeon

In Partnership with

Steering through economic downturns using tangible cash flows

Understanding the Manulife Fundamental Equity fund: insights from Patrick Blais and Jakub Sulimierski of the Manulife Fundamental Equity team

Read on

Christopher Lee

MFAA head credit adviser, Finsure Finance and Insurance

Stewart Saunders

Heritage Bank

Jakub Sulimierski, CFA

Manulife Investment Management

Patrick Blais, CFA, FSA

Manulife Investment Management

Industry experts

senior portfolio manager, Fundamental Equity team, Manulife Investment Management

Patrick Blais, CFA, FSA

senior investment analyst, Fundamental Equity team, Manulife Investment Management

Jakub Sulimierski, CFA

Heritage Bank

Stewart Saunders

MFAA head credit adviser, Finsure Finance and Insurance

Christopher Lee

In Partnership with

Steering through economic downturns using tangible cash flows

Understanding the Manulife Fundamental Equity fund: insights from Patrick Blais and Jakub Sulimierski of the Manulife Fundamental Equity team

Read on

Jakub Sulimierski, CFA

Manulife Investment Management

Patrick Blais, CFA, FSA

Manulife Investment Management

Industry experts

senior investment analyst, Fundamental Equity team, Manulife Investment Management

Jakub Sulimierski, CFA

Heritage Bank

Stewart Saunders

MFAA head credit adviser, Finsure Finance and Insurance

Christopher Lee

senior portfolio manager, Fundamental Equity team, Manulife Investment Management

Patrick Blais, CFA, FSA

A unified approach to portfolio construction

Published 13 Nov 2023 | Updated 12 Sep 2024

-1

Q2 2013

Q3 2014

Q2 2015

Q3 2015

Q4 2015

Q2 2017

Q1 2018

Q3 2018

Q4 2018

Q1 2020

Q2 2022

Q3 2022

Cumulative Excess Returns

Manulife Fundamental Equity Fund (F) = 35.8%

Morningstar Cdn Equity Focused Category = 20.8%

Manulife Fundamental Equity Fund (F)

Morningstar Canadian Equity Focused Category

Excess Returns Relative S&P/TSX Composite TR Index During Negative Quarters

Manulife Fundamental Equity Fund (Series F)

*Inception date August 26, 2003. Source: Morningstar Direct, as of August 31, 2024.

History of outperformance

Manulife Fundamental Equity Fund (Overall Morningstar Rating)

Canadian Focused Equity Category

S&P/TSX Composite Total Return Index

Morningstar rating

Percentage of peers beaten

# funds in category

1 year

24.27%

17.96%

18.77%

—

90%

495

3 year

11.93%

6.74%

7.58%

96%

481

5 year

14.35%

10.65%

10.63%

91%

464

10 year

11.60%

7.77%

7.32%

91%

324

15 year

10.92%

8.95%

8.42%

—

81%

171

20 year

9.66%

7.81%

8.32%

—

85%

—

Since inception*

9.59%

9.04%

—

-1%

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source: Morningstar Direct, as of Aug 31, 2024

High conviction

Excess Returns Relative S&P/TSX Composite TR Index During Negative Quarters

2021

2022

2023

Sulimierski, delving further into the conversation, reveals what truly differentiates this team from others in the market. A distinct characteristic of the team’s funds is downside protection. The objective has always been to ensure the funds outperform during down quarters. Their track record over the last decade speaks for itself.

Blais emphasizes their unique focus on "cash" when identifying business opportunities. By concentrating on tangible cash flow, they assess the real cash a company generates. This approach allows them to gauge the quality and sustainability of a business, ensuring they invest in companies with consistent cash generation and potential for growth. The portfolio manager maintains, “There are other managers that focus on cash, but we really believe that we focus on the right cash. We call this tangible cash flow. It’s our way of saying the real cash that comes to meet the owner of the business." “With the cash we measure the quality of the business. We measure the sustainability because we want businesses that will continue to grow. We’ve built a well-diversified portfolio of around 40 names that meet the criteria of strong cash-flow generation.” This number of stocks hits the mark. Blais believes it offers the right balance to craft a diversified portfolio while keeping cash holdings minimal, since their focus is to stay invested.

Pillars of distinction: downside protection, history of outperformance, and high conviction

Cash-driven strategy

Blais asserts, “Our meticulous process assists us in determining the ideal weight for each holding and deciding the opportune selling point. “We don't cling to stocks indefinitely. If their value inflates or fundamentals wane, we recognize we're not compensated for merely holding cash. We're proactive – buying at attractive valuations, selling when prices peak, and consistently maintaining an optimal balance in our portfolio.”

The Fundamental Equity fund

The Morningstar Rating, commonly referred to as the Star Rating, relates how a fund has performed on a risk-adjusted basis against its Morningstar category peers, and is subject to change every month. Calculations are based on the funds in each Morningstar category to better measure fund-manager skill. The Star Ratings as of August 31, 2024 for the funds shown and the number of funds within their categories for each period are: Manulife Fundamental Equity Fund within the Canada Fund Canadian Focused Equity category: 1 year period, n/a stars & 495 funds, 3 year period, 5 stars & 481 funds, 5 year period, 5 stars & 464 funds, 10 year period, 5 stars & 324 funds. Funds are ranked by their Morningstar Risk-Adjusted Return scores with the top 10% of funds in a category receiving 5 stars, the top 22.5% receiving 4 stars; a fund in the middle 35% receiving 3 stars; a fund in the next 22.5% receiving 2 stars and a fund in the bottom 10% receiving 1 star. The Overall Star Rating for a fund is a weighted combination of its 3, 5, and 10-year ratings. Overall ratings are adjusted where a fund has less than 5 or 10 years of history. Please refer to www.morningstar.ca for greater detail on the calculation of the Star Ratings. Information about a portfolio's holdings is historical and is no indication of future portfolio composition, which will vary. Certain research and information about specific holdings in the fund, including any opinion, is based on various sources believed to be reliable. Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. The information provided does not take into account the suitability, investment objectives, financial situation, or particular needs of any specific person. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns net of fees and expenses payable by the fund (except for figures of one year or less, which are simple total returns) including changes in security value and reinvestment of all dividends/distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment, or legal advice. Clients and prospects should seek professional advice for their particular situation. Neither Manulife Investment Management, nor any of its affiliates or representatives (collectively Manulife Investment Management) is providing tax, investment, or legal advice. This material is intended for the exclusive use of recipients in jurisdictions who are allowed to receive the material under their applicable law. The opinions expressed are those of the author(s) and are subject to change without notice. Our investment teams may hold different views and make different investment decisions. These opinions may not necessarily reflect the views of Manulife Investment Management. The information and/or analysis contained in this material has been compiled or arrived at from sources believed to be reliable, but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness, or completeness and does not accept liability for any loss arising from the use of the information and/or analysis contained. The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline, or other expectations, and is only current as of the date indicated. The information in this document, including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Manulife Investment Management disclaims any responsibility to update such information. Manulife Investment Management shall not assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained here. This material was prepared solely for informational purposes, does not constitute a recommendation, professional advice, an offer, or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security or adopt any investment approach, and is no indication of trading intent in any fund or account managed by Manulife Investment Management. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Diversification or asset allocation does not guarantee a profit or protect against the risk of loss in any market. Unless otherwise specified, all data is sourced from Manulife Investment Management. Past performance does not guarantee future results. This material has not been reviewed by and is not registered with any securities or other regulatory authority, and may, where appropriate, be distributed by Manulife Investment Management Limited. Manulife, Manulife Investment Management, Stylized M Design, and Manulife Investment Management & Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license.

Source: Morningstar Direct, as of Aug 31, 2024.

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Performance difference between Manulife Fundamental Equity Fund and its category, on a rolling 5-year basis since inception

Source: Manulife Investment Management, Morningstar Direct. For series F units of the fund. For illustration purposes only. As at September 30 2023. Fund inception: August, 2003. Past performance is not indicative of future results. Negative quarter refers to when returns were negative for the S&P/TSX Composite Index during a particular quarter in a calendar year. Benchmark: S&P/TSX Composite TR Index.*Formerly Manulife Canadian Stock Fund. Lead management assigned to Canadian Fundamental Equity Team in November, 2012.

2024