While many investors hunkered down during the market downturn this year, hanging on to their positions and hoping for better days ahead, money manager Greg Newman has been aggressively selling.
The portfolio manager at Scotia Wealth Management in Toronto is currently holding about 50-per-cent equities in his average portfolio, which is regularly a mix of 70-per-cent equities and 30-per-cent fixed income.
It’s a slight increase from 45-per-cent equities earlier in the week before Mr. Newman took advantage of the recent market rally. Yet it’s a big drop from 90-per-cent in equities he held at the start of the year.
Mr. Newman started trimming stocks across his portfolio in February.
“We saw the skies were darkening, and we wanted to be in front of it,” says Mr. Newman, who oversees about $800-million in assets.
The other 50 per cent of the portfolio is in fixed income, including short-term high-interest saving funds paying about 3 per cent, and short-term investment-grade bonds.
The active strategy has paid off so far this year: Mr. Newman’s average 70-30 portfolio is break-even so far this year, as of Aug. 31, while the S&P/TSX Composite Index was down about 10 per cent. Both performance results are based on total returns, while Mr. Newman’s is net of fees. Some of his top holdings today include BCE Inc., TC Energy Corp., Keyera Corp., AltaGas Ltd., Dollarama Inc. and Intact Financial Corp.
The Globe and Mail recently spoke to Mr. Newman about his investing style and what he’s been buying and selling.
Describe your investing style.
I would describe it as opportunistic, not just value or growth or quality. We look to buy good businesses with catalysts that we feel make them mispriced. Maybe it has a cheaper valuation than its peers, or is a stock others don’t want to chase because they feel it has already run too far, like Tesla, for example, and we feel there’s more to go. We are fundamental investors, and we respect technical analysis. We also use options when we feel it can lower risk, but not to speculate. And we prefer dividends, wherever possible.
What have you been selling?
We’ve been trimming almost everything over the past several months across sectors like technology, financials, industrials and energy. You want to shrink your equity position when you’re heading into bad markets. It’s painful to do and scary. And you don’t do it all at once.
What do your clients think about this defensive strategy?
What I’ve learned over the years is that if a client is down 5 or 6 per cent when their friends at the cocktail party are down 20 or 25 per cent, it’s a lot easier for them to endure it. They are less likely to have that breaking point when they’re down 30 per cent and they can’t stand it and they sell. That does a lot more harm to their portfolios longer term. I think being down a whole lot less makes it a lot more tolerable and a lot more comfortable.
What have you been buying lately?
I have been buying high-interest savings products such as GICs, high-interest savings funds and stocks that benefit from energy’s strength with nice dividends that can continue to grow. Earlier this week, for example, I added to positions such as TC Energy and Algonquin Power & Utilities Corp. I also added to BCE and Brookfield Infrastructure Partners LP, which are also good dividend payers.
What are some of the best picks you’ve made in your career to date?
Lululemon is one. We bought the stock in 2008, around US$6 during the depth of retail during the global financial crisis. I was seeing everybody on the subway with these Lululemon bags. I thought it was an infectiously good product that looked good. It was affordable luxury. At that point in my career, I didn’t have as much conviction to say the analysts were wrong, but I had a gut feeling. [The stock is now trading at about US$300 on the Nasdaq. There was a two-for-one stock split in 2011].
We also got into Shopify in the early $30-range on the TSX in 2016. We sold some in the $400s during the March, 2020, COVID scare and another round at around $1,700 [before the 10-for-one stock split in July]. The stock is currently trading at around $38 in Canada.
We also bought Tesla early, not long after the IPO in 2010, at around US$25. The stock is currently trading at around US$229, after two stock splits.
What about worst picks?
I held both BlackBerry and Nortel for too long. With BlackBerry, I believed in the product. I thought it would be more important than the app, but I was wrong. With Nortel, I had an inkling that it was over for that company, but it was huge capital gains and I thought, ‘you never know.’ Now we try to be leaders, not followers, where we think we have an edge.
What investment advice do you give to friends and family when they ask?
I tell them that the stock market has proven to be a wonderful wealth creator over time, but bear markets happen. Expect them, and rather than dreading them, use them to your advantage. They are cleansing and reset mechanisms. There were a lot of bad ideas, and a lot of silliness in the markets in recent years. Tomorrow’s winners are usually different than before. Try to find opportunities.