Manager Insight

Veteran value investor sees "sweet spot" in current market.
By Diana Cawfield | 29/06/12

Gaelen Morphet, lead manager of the $595-million Empire Elite Equity, says market volatility is creating opportunities.

About the Author
Diana Cawfield is an award-winning writer who has been a regular Morningstar contributor since 2000. Her numerous publication credits include the Toronto Star, Advisor's Edge and Chatelaine, as well as the Canadian Securities Institute's online educational services.

"I'd say we're actually in a sweet spot right now," she says. "As a value investor, you try and capitalize on the emotionalism of the market to buy names when they're cheap and sell them when they're expensive. They're still high-quality names."

Morphet is the senior vice-president and chief investment officer of Empire Life Investments Inc. Along with the Equity Elite mandate, she has the lead role for Empire Asset Allocation, another of the firm's segregated funds that combine investment management and insurance benefits.

This year, Morphet's responsibilities expanded to include Empire Life's first family of mutual funds, launched in January. In total, she is responsible for approximately $9 billion in assets under management.

In this market climate, almost every stock out there "is a value stock right now," according to Morphet, so she employs strict risk parameters. When it comes to stock-picking in the predominantly large-cap Empire Elite Equity mandate, "it's easier to say what we don't want," she says. "That's just as important. We don't want any corporate governance issues; we don't want stretched financial situations, such as excessive debt."

While Morphet remains focused on long-term strategy, "I'm trying to hold hands with investors right now," she says. "Many people are saying, 'when am I going to make my money back in the market?' So I say to investors, make sure you know what you own, you're comfortable with the risk profile of what you own. If you're not, take action."

 
Gaelen Morphet

Formerly with Toronto-based CIBC Global Asset Management Inc., Morphet joined Empire Life in November 2009 with two of her former CIBC colleagues, Nesim Mansoor and Lieh Wang. In August 2011, Morphet's team expanded with the hiring of former Altamira portfolio manager Virginia Wai-Ping, who joined Empire Life after a sabbatical from the investment industry. Morphet's team now consists of eight portfolio managers, including herself.

A graduate of the University of Western Ontario, Morphet received a bachelor of arts in psychology in 1984. Upon graduation, she joined the former McLeod Young Weir as an assistant analyst in the research department. Her mentor and head of the department, John Pepperell, told Morphet that if she kept applying her skills, the sky was the limit.

In 1988, Morphet moved to the Bank of Nova Scotia as a portfolio manager in the pension-fund area. She received the CFA designation in 1992. In 1993, the department evolved into Scotia Investment Management Ltd. and she was eventually promoted to head of Canadian equities.

In 1996, she joined AMI Partners Inc. as a partner and portfolio manager. In 1999, she moved to Merrill Lynch Investment Managers Canada as a senior vice-president. In 2002, CIBC acquired Merrill Lynch's Canadian asset-management unit, which eventually became CIBC Global Asset Management.

At Empire Life, Morphet and her team have been finding more opportunities outside Canada. For example, she says, the 22% weighting in the U.S. "is the highest exposure that I've ever had in the U.S. in my entire career" in a Canadian-focused equity fund. Overall, Empire Elite Equity holds roughly 30% in foreign securities. Morphet says she is comfortable with that level of exposure, and doesn't expect it to change drastically.

As for security-specific risk, Morphet says there is no maximum ceiling for an individual stock weight among the approximately 40 names, other than the 10% limit imposed by securities regulators.

Because market volatility is "so enormous," the team has been taking money off the table. For example, in the wake of a strong quarter for the banks, the strategy would take some money from the rise in stock prices and redeploy it to stay diversified and spread the risk.

However, Morphet still considers bank stocks to be long-term value investments. Bank of Nova Scotia BNS, for one, remains one of the top positions in Empire Elite Equity. "The stock gets battered around," says Morphet, "last year it was the worst performing bank, yet it has the best, long-term track record of all the banks."

Scotiabank, she says, continues to build its intrinsic value over time and market volatility has offered buying and selling opportunities in the stock price. As well, "it's got a great yield; it's really well managed and well diversified."

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