About Sprung & Co.

Investment Philosophy and Style

Our approach to equity investment is value based. Portfolios are constructed from the bottom up. What this means is that first and foremost, we attempt to identify good companies selling at good value in the market. The particular industry in which a company operates is not of primary concern. As a result, we do not spend a lot of time examining macro-economic issues affecting the industry but the majority of time is spent studying the micro-economic issues effecting the company ... READ MORE

There are many permutations of what may determine a good company. One of the first things to consider is whether or not the company participates in a reasonable business environment. The nature of that environment may be cyclical, but that fact in itself can provide investment opportunity. The key determinant is to be assured that a reasonable expectation of profitability exists over the period the investment is contemplated (typically three to five years).

Is the company well capitalized to ride out soft periods or is there excessive debt? Many companies can have less than pristine balance sheets but opportunities to address this condition should be explored. Does the company have a leadership position in the industry or some other competitive advantage? Understanding the key drivers of profitability is essential. We like to focus on the components of ROE (Return on Equity). The key is to determine where profitability is likely to be created in margins, turnover, leverage or tax efficiencies.

Management credibility is critical. We look for management's track record to indicate successful implementation of strategy. Management visits and meetings are essential but many executives are smooth talkers so evidence of execution is key. Many other factors need to be examined: corporate governance and board composition, management incentive and option programs, capital allocation and budgeting procedures, off-balance sheet liabilities, etc.

The more difficult question of what constitutes good value then comes into play. We use many factors and models depending on the circumstances. At the end of the day, we are determining the price that an investor/owner would be prepared to pay for the business. All debt and liabilities must be taken into account in this assessment. This "intrinsic value" is then compared to the market price. Often, we will employ simulation or scenario analysis to get a measure of the upside and downside risk in a given stock.


Research Process and Portfolio Construction

Potential securities are identified through a variety of sources. In addition to materials examined from brokers and periodicals, candidates are often identified through database screens for characteristics consistent with our style. Management contact is then initiated with a view to access the firm's competitive position, outlook and prospects. Often, new candidates are identified in this due diligence process ... READ MORE

In this methodology, industry selection takes a backseat to security selection. Overall portfolio risk is examined retrospectively via an attribution analysis, usually on a quarterly basis. Over time, the attribution analysis demonstrates that security selection is the primary driver of value added.

As previously mentioned, portfolios are built from the bottom up, stock by stock. Institutional portfolios will typically have more securities than Private Wealth clients depending on size. We view portfolio management as an evolutionary, as opposed to a revolutionary, process. The best reason to sell a stock is to find a more compelling investment to take its place. Alternatively, an investment reaches its target price and fundamentals have not improved to the extent that a higher price is justified. In this case, we would sell the security and re-deploy the funds in a combination of cash and other existing holdings. If a holding's price drops precipitously, a re-examination of the fundamentals is initiated to determine if more should be purchased, or conditions have changed such that the investment is no longer attractive.

Often, two or more alternatives appear to have merit. This condition occurs when new candidates are considered to replace existing holdings. In these circumstances, we use an internal growth model (IGR) to compare alternatives. It compares the reinvestment rates of alternative investments relative to the prices paid to buy that return, after adjusting for dividends. If you pay less and get more return or pay more and get less return, the actions required are self-evident. However, in cases where you pay more and get more return, or pay less and get less return, it is not as simple. The IGR model calculates the payback period in order that a determination can be made if the premium or discount can be made up within the investment time horizon. Sensitivity is performed around the price and ROE to add to the information available.

Once a portfolio is constructed, ongoing analysis is performed to ensure that the characteristics of the portfolio are consistent with the value style over time. Generally, our portfolios tend to exhibit good valuation characteristics (low P/E, high ROE, low P/Book, etc.) relative to a benchmark, usually the S&P/TSX index.


Michael R. Sprung, CFA - President: msprung@sprunginvestment.com

President and Founding Partner: Michael Sprung.

• Michael has over 28 years experience in the investment industry, managing equity and balanced portfolios for institutional and private clients ranging in size from several hundred thousand dollars to several billion dollars;

• Michael founded Sprung & Co. in 2005 to meet the personalized needs of private clients, not-for-profit organizations, endowments, foundations and small institutions;

• Michael is a member and past director of the Toronto CFA Society and a member of the CFA Institute;

• Michael is a frequent commentator on television (ROB-TV, CBC), 680 NEWS, Reuters, Bloomberg News, The Globe and Mail and CanWest News (including the Financial Post). He also contributes to MoneySense magazine and other professional publications;

• Michael is a director of the Hearing Foundation of Canada; a former chair of Bellwoods Centres for Community Living, an organization for adults with spinal cord injury; the Keystone Foundation, and also is an active member of Rotary.


Fred Palik, CFA, Vice President, Fixed Income: fpalik@sprunginvestment.com

Vice President, Fixed Income: Fred Palik.

• Fred has over 25 years of experience in the investment management business. He joins Sprung & Co. with extensive experience in fixed income management in a variety of senior positions, primarily in the insurance and hospital sectors.

• He started his career as a credit analyst with a major brokerage firm. His experince has also included participation at a senior level on investment policy and asset mix matters.

• At Sprung & Co., Fred will be responsible for all fixed income and cash management. In addition, he will be a major participant on the Investment Committee. Fred also brings experience in Information Technology with emphasis on investment management applications.

• Fred is a Chartered Financial Analyst (CFA) and has a B. Comm. from Concordia University. He is a member of the Toronto CFA Society.


Lois O'Sullivan, CFA - Vice President: lois@sprunginvestment.com

Vice President: Lois O'Sullivan.

• Lois has over 26 years of experience in the investment management business. Lois is an expert in operations, with experience and expertise in all aspects of fund management. At Sprung & Co. Lois will be responsible for all fund administration duties and trading execution.

• Prior to joining Sprung & Co., Lois was a founding shareholder of Sprucegrove Investment Management, a successful firm specializing in international markets. She also was the Manager of Investment Services for Confed Investment Counselling and was the manager of Securities Research at Confederation Life Insurance Company.

• Lois is a Chartered Financial Analyst (CFA) and a Fellow of the Life Office Management Institute (FLMI).

• In addition, Lois serves as a director of the Victorian Order of Nurses (VON) where she has chaired the Finance and Investment Committee and served as Secretary, Treasurer of the Hamilton Foundation Board.


K. Michael Albrecht: malbrecht@sprunginvestment.com

Associate: K. Michael Albrecht.

Sprung & Co. is pleased to welcome K. Michael Albrecht as an Associate member of the Company.

Michael has had several senior positions with leading Investment Firms over the past 40 years. His former affiliations have been with:

• Canavest House (Founder)
• MBA Securities (Founder)
• Levesque Beaubien (Senior Vice President and Director), and,
• Maison Placements Canada (Vice President and Director).

Michael joins Sprung & Co. to participate in portfolio management, securities research and client development.

He is a member of the Royal Canadian Yacht Club and The Albany Club of Toronto. Michael enjoys tennis, sailing and golf.


CONTACT SPRUNG & CO:  contact@SprungInvestment.com
Member, Investment Counsel Association of Canada
Proudly Associated with Sigma Analysis & Management Ltd.