Portfolio Management Corp Anish Chopra isn’t making a recession call right now, but the money manager is holding extra cash for a sharp downturn he believes could come sooner rather than later, given the number of macro events affecting markets.
“We’re in a very challenging market environment; there’s the energy price shock, higher interest rates, food inflation, the war in Ukraine and an uneven economic recovery with COVID-19,” says Mr. Chopra, managing director at Portfolio Management Corp. in Toronto. He oversees more than $500-million in assets.
“It’s the number of different things that the market has to deal with – and the pace of those events – making it difficult.”
His company is currently holding about 12 per cent cash in its growth portfolio, up from 8 per cent last summer, readying for an opportunity to buy good companies that might get hit in a market downturn – whether it’s an official recession or not.
“While there’s a trade-off with cash in an inflationary environment, it cushions an equity market slowdown,” he says. “It also allows us to invest in companies that meet our criteria. It’s offence and defence at the same time.”
His growth portfolio, which also includes 84 per cent equities and 4 per cent fixed income, gained 12 per cent over the past year, as of March 31. The portfolio has had an average compounded annual return of 9 per cent over the past decade.
The Globe and Mail recently spoke to Mr. Chopra about what he’s been buying and selling, and the advice he gives friends looking for stock tips:
Describe your investing style
We want to buy the highest-quality companies we can invest in at reasonable prices. Quality means companies with a solid business model, good balance sheets, high returns on capital and great management teams. We want them to be able to survive difficult downturns like the one we had in 2020. Valuations are also important. It’s a lot to ask for, so we have to be patient when investing.
What’s your take on a pending recession?
I would say there’s a higher probability of a recession simply because we’ve got a lot of global events coming together quite quickly. Given the uncertain environment, there’s a chance that central banks could overdo it with interest rate hikes and tip the economy into a recession. We’re not making a macro call on whether there’ll be a recession over the next six months. Instead, we’re just making sure we’re prepared for various economic scenarios.
What have you been buying?
Our focus is on non-cyclical areas of the market, such as telecom, utilities and health care, and a move away from consumer discretionary stocks given rising inflation and other factors. For instance, we have been adding to our position in Johnson & Johnson. It’s a diversified health care company that also has a COVID-19 vaccine. It’s a stock that we’re happy to hold in a recessionary environment and an inflationary environment. We also continue to invest in telecom company BCE
increase
and utilities company Emera
. We’ve also invested in precious metals streaming company Franco-Nevada
as an inflation hedge. We like it because – unlike gold miners that face rising costs – Franco-Nevada has a royalty on sales coming out of those companies’ mines. Also, gold rises with inflation.