Rarely has there been a year when fund managers have breathed such a collective sigh of relief that it’s over. In 2022, stocks sank here and abroad, bonds posted record losses, and no matter one’s investing style – growth, dividend income, small cap, you name it – it just didn’t work. But a new year beckons, and money managers are eager to put their investment chops to work. To do so, they’ll need to navigate an expected slowdown that may drag major economies into recession and see corporate profits go into a tailspin.
We asked Canadian fund managers for their best advice on how to position portfolios for 2023, as well as for a top pick.
Ken O’Kennedy, chief investment officer, Dixon Mitchell Investment Counsel
Over the last 12 to 18 months we have been increasing allocations to Canada over the U.S. in our internal asset allocation. We continue this positioning in 2023. While we believe the U.S. has some of the strongest competitively positioned and best run companies in the world, they are broadly priced this way and hence could be susceptible to further valuation risk. Despite significant outperformance of the Canadian market in 2022, we are finding attractive value in Canada, especially in high quality small cap businesses. Furthermore, we would not abandon bonds after a truly horrible 2022, as we expect this asset class will once again provide diversification benefits and risk mitigation for investor portfolios.
Top picks: Despite the noisy macro headlines and a bond market predicting a recession in 2023 via an inverted yield curve, we believe the macro backdrop is creating several opportunities for investors in both Canada and the U.S., and even in bonds. In the U.S., we think Intercontinental Exchange
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provides attractive value for a business producing prodigious cash flow with a track record of value creating M&A. In the Canadian market, Brookfield Corp.
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are attractive post-split. Many short-term investment grade corporate bonds are attractive, as those with maturities of one to three years are yielding between 4.5 per cent and 5 per cent.