Arup Datta, senior vice-president and head of global quantitative equity at Mackenzie Investments in Boston.The Globe and Mail
While some investors focus on growth and others on value, money manager Arup Datta of Mackenzie Investments selects stocks based on a combination of the two alongside quality metrics such as balance sheet strength and employee satisfaction.
For the past 18 months, his firm has been using a proprietary machine learning-based model to predict a company’s fundamentals, which has helped it double – and in some cases even triple – returns on certain stocks, not including the high-flying Magnificent Seven.
Mr. Datta’s self-described “fundamental quantitative” investment strategy sounds complicated, but he sees it as a relatively straightforward way of picking stocks without worrying about economic uncertainty and market swings.
“We’re all-weather managers,” says Mr. Datta, senior vice-president and head of global quantitative equity at Mackenzie Investments in Boston, who oversees about US$9.5-billion in assets.
“The idea here is rather simple. I like to keep my life simple. The markets are, at any point in time, either loving growth or loving value or loving quality, and we have all of those embedded in our portfolio.”
The strategy has led to benchmark-beating returns in recent years. Mackenzie Global Equity Fund, Series F, has returned 30 per cent over the past year as of Feb. 21, according to Morningstar Inc. data. Its three-year annualized return is 16 per cent and its five-year annualized return is almost 14 per cent.
The fund’s top five holdings are Nvidia Corp. NVDA-Q, Microsoft Corp. MSFT-Q, Apple Inc. AAPL-Q, Alphabet Inc. GOOGL-Q and Amazon.com Inc. AMZN-Q, with a weighting of about 4 per cent to 5 per cent each.
The Globe and Mail spoke with Mr. Datta about three stocks he likes outside of these top tech names, and one he sold recently:
Name three stocks you own today and why.
Royal Caribbean Cruises Ltd. RCL-N is a stock we bought in June, 2023 at around US$95 a share. Today, it’s trading at around US$240. A lot of people are going back to cruises after the pandemic. It’s a cheaper way to see the world. Sell-side analysts kept raising their earnings forecasts and target prices. It also had a cheaper valuation, selling at 10 times price-to-cash flow, while its peers were at 15 times.
We also looked at employee satisfaction and found that workers seemed happy based on reviews on websites such as Glassdoor. So, it was largely a growth purchase, but valuation and quality were also considerations when we bought. We continue to own it today, even though the valuation isn’t nearly as cheap, because we believe it’s still a high-quality business with more growth ahead.
Rolls-Royce Holdings PLC RYCEY is a stock we bought on the London Stock Exchange in August, 2023 for £210 a share. Today, it’s trading at around £610, so it’s tripled since we bought it. Most people think of Rolls-Royce cars, but the company’s biggest business is aircraft engines. Analysts were bullish when we bought it and remain so today.
Growth is one reason we bought it. Our machine-learning model also forecasted stronger sales than what the Street had estimated. The company also looked cheap with a valuation of 8 times price-to-cash flow versus 15 times for its peer group. Its free-cash-flow margins were also strong. Even though the valuation is more expensive today, we continue to own it because we see more growth ahead.
Siemens Energy AG SMNEY, the German renewable energy company, is a stock we bought in August, 2024 on the Frankfurt Stock Exchange for about €24 (36.02) a share. Today, it’s trading at around €61, so it’s been another strong performer.
Our machine-learning model showed the company would generate stronger revenue than the Street forecasted and, so far, it has been correct. It was also cheaper than its peers based on metrics such as price-to-cash-flow and enterprise value [EV] to EBITDA [earnings before interest, taxes, depreciation and amortization].
Name a stock you sold recently.
Marks and Spencer Group PLC MAKSF is a stock we bought on the London Stock Exchange in June, 2023 for £190 a share and sold last month for about £340. It did well in the past, but lately, the ‘beat and raise’ cycle has weakened, so we sold it. We bought it in 2024 because the stock was cheap based on valuations such as price to cash flow and EV/EBITDA, analysts were bullish, and our machine learning model predicted better fundamentals than where the Street was.
This interview has been edited and condensed.