Rising interest rates are a signal of renewed confidence in the Canadian economy and could bode well for financial and energy stocks, says Ryan Bushell, vice-president and portfolio manager at Leon Frazer and Associates. Mr. Bushell is betting on certain stocks in those sectors to help boost returns for his retail investor clients. The Globe and Mail spoke with Mr. Bushell recently about what he's buying and selling - and the consumer stock his firm wishes it bought when it was pitched by a new hire back in 2013.
What concerns are you hearing from investors today?
People are concerned with the level of markets broadly, especially in the U.S., with markets around all-time highs. This generation of investors went through the 2000 tech bubble - so they saw one big unwind - and then 2008. Those wounds are fresh. A lot of people are jittery. We're not so concerned with the valuation question for what we own. We see some opportunity for better returns ahead for some of the big Canadian sectors like financials and energy.
What's your outlook for the markets?
We think the U.S. market is flashing some warning signals, especially the technology sector. We expect the U.S. market to cool. The question is: Will the Canadian market go down too? If the technology sector goes down in the U.S., the Canadian market could benefit. We have a lot of the sectors that typically perform [after technology loses steam], including financials and commodities.
What stocks have you been buying lately?
We continue to kind of force ourselves to [buy] into energy producers and some energy infrastructure companies we think are still very strong. It's hard because the sentiment has been so negative. We ultimately think supply and demand will rebalance and that the underinvestment that's going on today will result in a shortage in the future. We see continued strong demand in the future. Enbridge is a name we've added to recently. We've also added Vermilion Energy and Freehold Royalties, two energy producers we think are well-positioned.
We also think the Canadian banks, broadly, are at a decent value here. They should trade at a premium to U.S. banks, probably more than they do. We think interest rates will rise for the next little while, which should be positive for them. We own TD Bank, Royal Bank, Bank of Nova Scotia and BMO.
A new company we've added in the last couple of years is Enercare, which does home heating and air conditioning service repairs and sales. We think it's a good market to be in for the long term. We try to buy essentials, things people need.
What have you sold?
We have been trimming positions in telecom and utilities, not because we don't like them but because they're interest-rate sensitive. We recently sold some Northland Power. We sold half of our position to take some money off the table. We bought it at around $16.50 in September, 2015, and sold some last month when it was a little over $23. If it comes back down we'd look to re-buy. We like the company.
What stock do you wish you bought?
Dollarama. My colleague Rebecca Teltscher pitched it in an interview when she was hired in 2013. It was trading in the $30-to-$40 range. We liked her passion and thirst for the idea and she had a great fundamental thought process on why she wanted to buy it. I wished we would've purchased it on her recommendation at that point in time. [It's now trading around $123.] The valuation today is a little bit too aggressive, but you can't argue with how the stock has done.
Thu, 20 Jul 2017 16:49 EDT