Invest Like Canada’s Largest Pension Fund With These 3 Stocks

How investors can learn from Ontario Teachers’ Pension Plan and its $140 billion worth of assets.

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Responsible for the retirement savings of more than 300,000 Ontario educators, the Ontario Teachers’ Pension Plan (OTPP) is Canada’s largest single profession pension plan. The company is headquartered in Toronto, but also has offices in London, Hong Kong, and New York. With assets under management of more than $140 billion, OTPP is one of the world’s largest money managers.

OTPP has made some high profile investments over the years, including a large stake in Maple Leaf Sports and Entertainment (owner of the Toronto Maple Leafs and Raptors), which was later sold to BCE and Rogers Communications. It’s the sole owner of Cadillac Fairview, which owns some of Canada’s most prestigious retail properties, like the Eaton Centre in Toronto and the Rideau Centre in Ottawa. It’s also a large player in private capital, investing in such private companies as Helly Hansen, Easton-Bell Sports, Hugo Boss, and the Copenhagen Airport.

That’s a very small sampling of the assets owned by OTPP. It is truly a massive player, owning hundreds of different companies across every industry.

Investors can greatly benefit from studying OTPP’s management and the management of other large pension funds. Although OTPP’s managers are limited to investing in just the largest Canadian companies due to its size, looking at the way its managers invest can help individual investors boost their returns.

Take Hudson Bay Company (TSX: HBC), one of OTPP’s largest holdings. OTPP holds more than $550 million worth of Canada’s oldest and arguably most iconic retailer. It’ also holds more than $350 million worth of Michael Kors (NYSE: KORS) shares, showing its confidence in the upscale clothing market going forward.

There’s considerably less competition in the high-end part of the clothing market. It’s partially because only a small portion of the population is willing to pay $500 for a handbag. It’s also much more difficult to gain credibility. Hudson Bay Company is so entrenched in the Canadian market that it’s considered the go to place to find every high-end brand under one roof.

The company is expanding its presence down south, with its acquisition of Saks. It spent $2.4 billion to acquire the luxury goods retailer and its more than 100 locations. Saks has just recently started an international expansion, opening stores in the Middle East, Mexico, and Puerto Rico. Additional stores in Canada are planned, including one in Toronto’s Eaton Centre, which if you recall, is owned by OTPP.

Teachers’ is also a large holder in Canada’s banks, with sizable holdings in three of the five big banks. Its largest position is in TD Bank (TSX: TD)(NYSE: TD). It owns approximately 2.4 million shares of TD, an investment valued at $171 million.

There are plenty of reasons for OTPP to be bullish on TD. It trades at a reasonable valuation, only 14 times trailing earnings. TD continues to grow its succulent dividend, recently hiking its quarterly payout more than 10%. It has exposure to the U.S. market with its northeast subsidiary. And like the other Canadian banks, its balance sheet is considered rock solid.

While OTTP doesn’t actually own shares in RioCan (TSX: REI.UN), its Cadillac Fairview subsidiary acts very much like RioCan. Both companies own some of the best retail properties in Canada, focusing on prominent malls in major cities. OTPP is exposed to real estate in a big way, as more than 20% of its capital is invested in the sector. In terms of sector allocation, this is one of its largest positions.

There’s a lot to like about investing in retail property. Anchor tenants are some of the largest and most stable companies in the world. Occupancy continues to be almost 100%. And dividends for investors are attractive, as RioCan currently yields more than 5%.

Foolish bottom line

It’s impossible for investors to replicate the results of OTPP’s portfolio of hundreds of different companies. But investors can look at the fund’s top holdings and top asset classes to get an indication of what some of Canada’s smartest money managers are doing with the fund’s capital. At the very least, they’ll get some ideas on where to invest next.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith has no position in any stock mentioned in this article. The Motley Fool owns shares of Michael Kors Holdings.

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