WINBelow an article dated September 30, 2011
DJ CANADA TIP SHEET: Ark´s Campbell Follows Wisdom Of The Markets
(This article was originally published Thursday.)
--Campbell mixes quantitative, fundamental techniques in Ark StoneCastle Stable Growth fund
--Fund shifted to defensive stance in May, now holds 25% cash
--Open Range, Swisher, Wi-Lan among fund´s top picks
By Edward Welsch Of DOW JONES NEWSWIRES
CALGARY, Alberta (Dow Jones)--The collective wisdom contained in markets is a better predictor of the economy´s future than almost any strategist, according to Bruce Campbell, manager of the Ark StoneCastle Stable Growth fund. He doesn´t try to predict whether the U.S. and European economies will sort out their problems.
"No one is smart enough to tell you that," said Campbell, whose fund applies a mix of quantitative and fundamental analysis to switch between defensive and offensive positions in Canadian stocks.
Instead, Campbell uses several techniques to judge what the markets are saying about the future. He says the most important is the so-called "bullish percent index," which looks at the number of stocks in the world stock markets with charts showing bullish trends.
Based on that and other tools, Campbell switched to a defensive stance in May, and increased his defense further in August, when stock markets started to slide sharply downward. He now holds about 25% of his portfolio in cash.
Campbell said the technique doesn´t allow him to pick tops and bottoms in the market exactly, but to follow closely behind changes in trends, and well ahead of changes in the news.
On March 9, 2009, the Monday after prices bottomed at 666 on the S&P 500, the news was downbeat and Campbell says his fund was still on defense. But about a week later, his indicators shifted to a bullish stance and he increased the fund´s exposure even as sentiment remained gloomy.
"If you looked at the news, it was still horrible, but the market started edging up," he said. "It could tell that things would get better--it was like the ask-the-audience option in [the television show] ´Who Wants to be a Millionaire.´"
Campbell applies similar sorts of techniques in his proprietary quantitative model to sort through about a thousand stocks on the Toronto Stock Exchange. Then he uses fundamental techniques like analyses of earnings growth, valuation and balance sheet strength to pick through the top stocks ranked by his model.
He continues to monitor his C$13 million portfolio using his quantitative model, getting out of stocks if their charts start to show signs of a technical breakdown. He says that approach helped him get out of Sino-Forest Corp. (TRE.T) before trouble hit the stock. He missed its move above C$20 a share, but was out well before allegations of fraud by Muddy Waters Research sent it plummeting.
The method is not flawless: Campbell estimates he loses money on nearly a third of his positions. But a two-thirds success rate has helped the fund outperform the S&P/TSX Composite index over the last 12 months through Aug. 31; Ark StoneCastle Stable Growth is up 14.2% over that period, compared with 7.2% for the index. In annualized returns over the last two years, the index has a slight edge, returning 8.7% compared with 7.2% for Campbell´s fund.
Right now, stocks Campbell holds and recommends including natural gas producer Open Range Energy Inc. (ONR.T), cleaning services company Swisher Hygiene Inc. (SWI.T) and technology patent-collector Wi-Lan Inc. (WIN.T). Each of those companies has a compelling story to tell investors, but for Campbell, that´s not the point.
"People like the story, that´s what they buy in a lot of cases," Campbell said. "With us, it´s about the discipline. As opposed to saying we think China is going to expand and copper is going to go up and energy is going to do this and that, with us we´re not concerned with predicting the trends, because the market tells us what they´ll end up being."