Dynamic Funds While many investors are doubling down on U.S.-listed securities ahead of president-elect Donald Trump’s return to the White House, money manager Vishal Patel is swapping some of his U.S. holdings for a few well-known Canadian stocks he believes will outperform in the coming months and years.
“We’ve made a lot of money in our U.S. holdings and are taking some of that capital and recycling it in Canada,” says Mr. Patel, vice-president and portfolio manager with Dynamic Funds in Toronto, who oversees more than $7-billion in assets. “I’m quite excited about what’s happening in Canada.”
Mr. Patel says the moves aren’t a macro call on how the broader Canadian market will perform compared to the U.S. Instead, it’s a selective strategy to invest in what he believes are high-quality stocks with strong management teams in sectors such as consumer staples, financials and industrials.
“We’re going to continue making a lot of money,” adds Mr. Patel, whose Dynamic Power Canadian Growth Fund – Series F has returned 40.3 per cent year to date and 41.7 per cent over the past 12 months. Its three-year annualized return is 13.3 per cent, and its five-year annualized return is 17 per cent. The performance data are based on total returns, net of fees, as of Dec. 13.
While Mr. Patel is bullish on the markets long term, he expects some volatility ahead, which would create more buying opportunities.
“Any time there’s volatility, it’s an opportunity to deploy more capital because I believe the best years of the stock market are ahead,” he says.
The Globe spoke with Mr. Patel about three Canadian stocks he’s owned for about five years and is buying more of, as well as one stock he’s selling:
Name three stocks you own today and why.
Alimentation Couche-Tard Inc., the leading convenience store chain, is a Canadian success story. It’s a business that started in Quebec and spread to the rest of Canada, the U.S. and globally. It’s an excellent operator.
Couche-Tard has a large acquisition on the table [to acquire rival 7-Eleven’s Japanese parent Seven & i Holdings Co., Ltd.]. Our investment thesis isn’t predicated on whether that deal is successful. Irrespective of what happens, this company has an amazing track record of capital allocation. Even if this acquisition doesn’t go through, it has a lot of other acquisitions it can look at. The risk for this company is that if, in the long term, the shift to electric vehicles means fewer people getting a snack or a drink at gas stations. That’s a concern. However, its business is still strong in countries with higher EV penetration.
Another success story is Brookfield Corp., Canada’s leading alternative asset manager. The key to its success is its leadership, culture and values. It hires some of the best talent globally and compensates them well. It’s a place where young talent can do extremely well.
The company is also an amazing long-term capital allocator, and its success aligns with its management team, which owns more than a 15-per-cent stake in the company. As shareholders, we want to invest our money alongside theirs.
The biggest negative for Brookfield is its leverage when interest rates increase. Historically, it has done an excellent job managing through different interest rate cycles. Now that interest rates are falling, there’s less focus on potential risks to its balance sheet.
WSP Global Inc., the Montreal-based engineering and professional services firm, is another great Canadian company with operations worldwide. It’s a fragmented industry, and the management team has done an amazing job consolidating in areas such as water, the energy transition and critical infrastructure. There’s a strong need for design and engineering work for global infrastructure projects in these areas.
Management has been disciplined in terms of the acquisitions it has made. A risk for the company is always project delays, which can drive up costs. Another risk is if governments pull back on infrastructure spending.