Kevin Burkett, partner and portfolio manager at Victoria-based Burkett Asset Management Ltd.The Globe and Mail
Money manager Kevin Burkett tries to avoid stocks in sectors that rely on short-term predictions.
Instead, the partner and portfolio manager at Victoria-based Burkett Asset Management Ltd. prefers to focus on businesses with understandable economics and recurring demand, such as consumer discretionary, industrials and some technology.
“We tend to favour high-quality businesses that have durability in their revenue streams,” says Mr. Burkett, a self-described long-term, value-oriented investor who oversees more than $500-million in assets.
His firm’s strategy includes seeking out companies with strong balance sheets and an ability to compound growing cash flows over time.
“That’s quite separate from trying to predict day-to-day fluctuations based on news headlines, which we’re seeing a lot of these days,” he says.
Mr. Burkett also uses fixed income to help balance his portfolios and has recently been selectively adding corporate bonds issued by high-quality businesses that he says may fall outside traditional investment-grade rating criteria due to their size, capital structure or other issuer-specific factors.
“There are really interesting opportunities there and, as spreads continue to tighten as they have, investors in non-investment grades should be well rewarded.”
The firm’s balanced portfolio, which includes an approximately 60-40 split of stocks and bonds, was up 13.9 per cent over the past 12 months. Its three-year annualized return was 10.9 per cent, while its five-year annualized return was 8.6 per cent. The performance is based on total returns, gross of fees, as of April 30. (Fees range from 0.40 per cent to 1.25 per cent depending on the size of a client’s portfolio.)
The Globe spoke with Mr. Burkett recently about what he’s been buying and selling:
Name three stocks you own today and why.
Constellation Software Inc. CSU-T is a stock we’ve wanted to own since we started our business in 2015, but we always felt it was too expensive. We later realized that it wasn’t expensive enough. We started buying the stock late last summer, when it dropped on the unexpected news that its founder and president, Mark Leonard, was stepping down [for unspecified health reasons]. The stock has continued to drop – and is down about 50 per cent over the past year – as investors worry about the impact of AI on software companies.
We’ve continued to buy the stock into this AI-related weakness. To us, it’s a fundamentally strong company trading at a very attractive valuation because there’s still a need for its software, which is hard to replace with AI.
Constellation also remains one of the highest-quality compounders in global markets. The company has built a highly decentralized acquisition machine focused on acquiring mission-critical vertical-market software businesses with recurring revenue characteristics and strong customer retention. It’s a winning strategy.
Colliers International Group Inc. CIGI-T is a stock we started buying in March and continue to add to on weakness. Most people see Colliers as just a real estate brokerage business, particularly in commercial and investment properties. However, it has moved into recurring, higher-margin service lines such as investment management, engineering and outsourcing.
The stock has dropped on AI-related concerns that people will be somewhat less inclined to use real estate brokers as AI becomes a tool. However, we believe the way investment properties are bought and sold requires a human element to match buyers and sellers and to facilitate the exchange of confidential information. It has a recurring business model and isn’t as tied to transaction volumes as people think. It’s a niche business we think many investors misunderstand.
Fanuc Corp. FANUY, a Japan-based robotics company, is a stock we’ve owned since our firm started in 2015 and added to over the years. The stock has doubled over the past year alone.
Fanuc is a global leader in automation and industrial robotics. It’s our best idea around where manufacturers are continuing to go to address labour shortages and productivity pressures, and to build resilience into their supply chains more generally.
Short-term industrial cyclicality has created opportunities to buy businesses such as Fanuc at valuations that are attractive relative to their long-term potential. We think it will continue to perform better as it gains recognition as a leading supplier to some of these chip manufacturers and as one that’s very hard to replace.
Name a stock you’ve sold recently.
Intercontinental Hotels Group ADR IHG-N, the company behind hotel chains such as InterContinental, Crowne Plaza and Holiday Inn, is a stock we’ve owned since the firm started and bought more of during the pandemic. We sold the stock in mid-April for US$147.69 a share.
It’s a stock we did well with over the years, but we decided to sell based on what we see as a deteriorating outlook for global travel because of rising consumer costs and more online communication that’s making business travel less necessary.
This interview has been edited and condensed.