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Takeovers Power Canadian Portfolio Alpha: a Wall Street Transcript Interview with Stephen Takacsy, Chief Investment Officer of Lester Asset Management and Portfolio Manager of the Lester Canadian Equity Fund

67 WALL STREET, New York - January 31, 2013 - The Wall Street Transcript has just published its Investing in Canada Report. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Investing in Canada - Long-Term Investing - Canadian Dollar Investing - Value Investing

Companies include: Rogers Communications Inc. (RCI), BCE, Inc. (BCE), Shaw Communications, Inc. (SJR) and many others.

In the following excerpt from the Investing in Canada Report, an experienced portfolio manager discusses his investing methodology and top stock picks:

TWST: What sectors are you finding favorable or are you overweight today?

Mr. Takacsy: We're still very defensively positioned, and I know that's going to sound odd because we did 16.8% return last year net of our fees, and you're probably asking, how can you be defensive when you make those kind of returns? Our portfolio hasn't changed a lot over the last few years. It's anchored by about 35% in high-dividend-yielding sectors that are very stable but growing, such as telecom, energy infrastructure like pipelines, renewable energy and power. That's about 35% of the portfolio, yielding on average about 4% dividend yield. We have the highest cash levels we've ever had, about 10% to 12% in cash, and 5% in gold bullion and gold stocks, 50:50. So that's about 50% of the portfolio right there, and that is, I would consider, the defensive part of the portfolio.

And the other 50% is a variety, a very diversified group, of mostly small/mid cap, and some large caps in there as well. And that's where we've tended to generate most of the alpha in the last few years. Companies that are either underfollowed by analysts or less well known by the public. We've also benefited very much in the past few years from a series of takeovers of our companies. Last year, we had five stocks that were acquired in our portfolio. That represented about 15% of the portfolio.

So we're pretty good at identifying companies that eventually maximize shareholder value, either by getting sold or spinning off a division or instituting a dividend for the first time and then growing it. We're really looking for companies that are not just good value but also that aren't dependent on export sales to Europe and places that are in trouble right now, or to the U.S. consumer, for example, and that don't have the exposure of foreign currencies, because we're very bearish on the U.S. dollar, the euro and the yen.

So these are companies that tend to be very domestically focused here in Canada, in general - broadcasting sector, media, food, that type of thing. Companies that aren't very economically sensitive, aren't very cyclical. So the sectors we like would be - our highest weighting has always been to consumer discretionary, but when I say consumer discretionary, relying more on the Canadian consumer; consumer staples, like I said, food or pharmacy, that type of thing; and a bit of technology.

There are several industrials we like as well. It's pretty broad-based, because consumer discretionary is very broad-based in itself, but our biggest exposure has traditionally been in broadcasting and media. It's been a very good space. There's been a lot of consolidation in the Canadian industry in recent years, with some of the big telecom companies buying TV broadcasters, acquiring content and so on, following a little bit what happened in the U.S. in that industry. So these are sort of the sectors we feel are the most stable and safest in what we consider a pretty scary world out there.

TWST: Would you give us a few examples of some of your current favorite stock picks or top holdings?

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.