Where do you see opportunities?
What about the risks?
We use a bottom-up approach focused on fundamentals to find reasonably valued growth companies. I’m particularly interested in “steady Eddies” – mid-cap growth companies that are able to compound earnings growth at solid but not spectacular rates over lengthy periods.
“When we find these consistent growers, we tend to stick with them through market cycles. For this reason, our portfolio turnover ratio is generally low – in the range of 25% to 30% over the past few years.”
These companies are often ignored by other mid-cap growth investors, who often gravitate towards companies with growth rates of 20% or more, which can be difficult to sustain over the long term.
The election of Donald Trump will exacerbate a theme we have been espousing for some time, that investors will have to become more
“We are seeing some long maturity emerging market bonds at near 2013 taper tantrum lows. For countries somewhat further up the credit spectrum with some experience of market volatility and past liquidity tests, and where there is some capacity to generate appropriate policy responses, we see opportunities.”
discriminating among emerging markets instead of the buy-high, carry-at-any-cost strategy that prevailed post the financial crisis.
POSITIONING A PORTFOLIO IN AN INFLATIONARY ENVIRONMENT
“We believe the best thing to own in an inflationary environment is a business with barriers to entry because it has the ability to move pricing up with inflation. If you think through history or look at the Forbes 400, the richest people in the world on that list are all business owners. They are not bond or gold owners. They are people who own businesses with pricing power that can lift their prices in line with or better than inflation over time. The ability to do that comes from barriers to entry in the business.”
You have to stay diversified in all of the 11 S&P/TSX Composite Index key sectors. Never load up on one sector or get rid of one sector just because you are trying to predict the next 12 months. That is one core strategy.
“One of the opportunities that we are seeing is in the healthcare sector, a beaten-up sector that is quite affordable. A few years ago, it got too popular and overvalued. Recently, it was one of the most unpopular sectors, but it has come back after Trump got elected. There are also opportunities opening up again in the utilities space.”
We tend to be a bit light on resources. I could be wrong, but I do think we are getting closer and closer to peak demand in resources.
Beutel Goodman Canadian Equity Fund
We continue to be constructive on equity valuations in some of the businesses in the financial services, telecommunications and consumer sectors. In commodity-based businesses, we are looking for quality, low-cost assets. We see valuation risks in certain yield-driven strategies, especially in pipelines, utilities and REITs.
“A reach for yield is bidding up the price of many traditional sources of dividends, taking valuations in areas such as pipelines, utilities and REITs to expensive levels. We continue to be absent from any positions in these areas, as there are less expensive sources of dividend
income elsewhere in the market.”
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