Eric Bushell, vice president and chief investment officer with Signature Global Investment Advisors in Toronto, refuses to be tied to an investment style. He wants to be free to roam where the opportunities are thickest and the crowds of competing buyers are thinnest. Being stuck in any investment box is anathema to maximizing returns, he says.

“We would call our style ‘common sense’,” says Bushell, a slim and intense 40-year-old who has been the lead manager of CI Investment Inc.’ s flagship CI Signature Select Canadian Fund since its inception in May 1998. “We don’t want to be confined to a specific investment style, such as value or growth, nor do we want to be confined to any geographical region or capitalization, such as large-cap or small-cap.”

Bushell’s universal perspective has paid off in returns that have beaten his funds’ benchmarks and competitors during both short and long time periods. A first-quartile performer for time periods ranging from two to 10 years, according to Morningstar Canada, his $3-billion CI Signature Select Canadian Fund had an average annual compound return of 11.3% for the 10 years ended Oct. 31. The fund’s return was a huge leap ahead of the 6.6% gain reported by the benchmark S&P/TSX total return index. For the miserable year ended Oct. 31, the fund dropped by 25.8%, while the S&P/TSX dropped by 31.4%.

Investment Executive selects its Fund Manager of the Year by ranking all funds with a 10-year performance record, on the basis that 10 years represents two average business cycles. IE award points to each fund based on its absolute annual returns, relative returns and quartile rankings. IE then factors in the fund’s cumulative 10-year return, beta and management expense ratio to identify funds that have consistently outperformed over the past 10 years. Bushell’s funds kept popping up.

Bushell-managed CI Signature Canadian Resource Fund is second only to Sprott Canadian Equity Fund in the equities mutual fund category in the 10 years, while CI Signature Select Canadian Fund placed fourth. In the balanced category, CI Signature High-Income Fund is the top fund for the past 10 years.

A history major in university, Bushell takes a chess player’s approach to investing, plotting his next move by studying how stocks are affected by seemingly unrelated events in other securities markets and geographical regions. He and his team of 23 oversee about $18 billion in assets under management for the Signature group of funds.

“Bushell is not a one-man show,” says Jordan Benincasa, an analyst with Morningstar Canada in Toronto. “He gathers input from experts on his team who specialize in a variety of areas, including commodities, high-yield debt, equities and currencies. He’s doesn’t just focus on bottom-up company analysis but looks at a lot of global factors, such as interest rate spreads and credit defaults. This information colours his asset-allocation decisions.” (For more by Benincasa on Bushell, see page 34.)

While CI Signature Select Canadian Fund must have 51% of its AUM in Canada to qualify as a Canadian equity fund, Bushell makes liberal use of his foreign-content allowance. His allocation of foreign stocks currently exceeds his Canadian stock component, but he manages to stay within the category’s guidelines by holding his cash in Canadian dollars. Cash is currently about 30% of the fund’s AUM, and Bushell is keeping a tight-fisted grip on it in anticipation of attractive buying opportunities as the repercussions of the global financial crisis and recession unfold.

“The opportunities in the Canadian stock market have been gradually shrinking through consolidation and takeovers,” Bushell says. “We’re down to a handful of large, liquid stocks and they are concentrated in financial services and resource sectors. If those sectors are not in favour, it’s difficult to add value in Canada.”

In 2000, in the heat of the technology boom, Bushell reconfigured the Signature investment team by having analysts become global specialists in particular sectors. Each analyst is responsible for investments in his or her sector for every fund in the Signature group. The technology analyst, for example, keeps close tabs on 45 significant companies around the world rather than on five or so names in Canada.

“When we took a global approach,” Bushell says, “our team members had to become specialists. It’s just too big a world for a generalist to keep track of.”

@page_break@Bushell encourages close communication among the equities and fixed-income experts on his team, and he isn’t afraid to move analysts from one side to the other. He sees all financial markets as intertwined. “At many investment organizations, there is a lack of communication among managers of different asset classes, but we think there is a good deal of intelligence in overlap,” he says. “Team members can glean helpful information from each other.”

For example, he says, a lot of low-grade, high-risk corporate borrowers were raising money during 2006 and 2007 at very “skinny” risk premiums relative to interest rates on high-quality government bonds. This mispricing of credit had repercussions, in terms of the accessibility of capital, and led to the overvaluing of leverage-sensitive assets such as real estate. It was a harbinger for credit markets and, ultimately, stock markets.

“Despite our firm’s early view on the coming credit crunch and subsequent deleveraging, I feel extraordinary remorse for not managing it better than we did,” he says, even though his funds took a defensive strategy by holding high cash positions. “The degree of off-balance sheet leverage was hard to put your finger on, and it turned out to be bigger than anybody expected.”

Bushell is not deploying his cash hoard yet. He believes that difficulties in corporate borrowing will lead to a growing number of companies going onto “survival mode.” That means conserving cash through any means available, including dividend cuts, staff layoffs, downsizing and cost-cutting. The tightness in credit could also lead companies to do equity financings in 2009, even at depressed stock prices, to shore up corporate balance sheets. Stock issues by desperate companies will present some good opportunities for buyers, Bushell predicts, and that’s when he may open his wallet.

“Capital is scarce, and that means buyers are in a position of power and will set the terms and conditions for upcoming equity financings,” Bushell says. “A lot of these financings will dilute existing shareholders, but the new buyers will get some interesting deals, as they’re the ones providing the essential rescue line.”

Gold is also “intriguing,” he says, and gold exchange-traded funds make up about 6% of CI Signature Select Canadian Fund’s AUM. Although expectations of deflation have depressed the gold price recently, Bushell expects that sometime in the next couple of years, the flight to safety that is supporting the U.S. dollar will dissipate. The market will become concerned about the cost of the financial bailout in the U.S. and massive government deficits.

“The market is a fickle creature, and as the financial crisis plays out, investors will shift their attention,” Bushell says. “Confidence in the U.S. dollar will fall and gold’s role will re-emerge. Investors have traditionally sought protection against a weakening currency in commodities. But in an environment in which growth is depressed, they are more likely to choose gold.”

Energy companies make up about 11% of CI Signature Select Canadian Fund’s AUM, due to Bushell’s expectations that oil and gas will recover earlier than other commodities. The fund holds no base metals and industrials, which he expects to suffer as the global economy stagnates and manufacturing activity declines.

Bushell is focusing on underleveraged, stable companies with strong cash flow and he is currently more interested in senior companies than small- and mid-caps. He’s not afraid to pay a premium for quality and growth potential, and looks for a catalyst or “engine of growth” that will lift a company’s stock price higher. He shies away from companies that are heavily owned by hedge funds that may be forced to liquidate their assets and push prices down.

CI Signature Select Canadian Fund typically holds between 60 and 100 stocks. Although no stock makes up more than 6% of the fund, weightings are typically closer to 1% and a “high-conviction, low-risk stock” would typically have a maximum weighting of 3%.

“Large and unleveraged companies will perform best in this market, while marginal players will find it’s not economical to compete and will either go bankrupt, exit the business or merge,” Bushell says. “If there is too much capacity in the system or global productivity stays low for an extended period, business will evolve to a more viable economic framework.” IE