While some investors are fretting about the market drop in recent months, money manager Donny Moss considers it an opportunity for long-term investors like him to buy high-quality stocks at sale prices.
“For someone like me who holds stocks for five, 10 or 15 years, we’ve had some opportunity to pick up names we were hesitant to add more to. So I’ve been trying to use the volatility as an opportunity,” said Mr. Moss, principal portfolio manager of North American equities at Industrial Alliance Investment Management Inc., who oversees $4.1-billion in assets.
His $3.3-billion iA Clarington Dividend Growth Class fund saw a return of 7.4 per cent over the past year as of July 31, compared with a loss of 0.1 per cent for the S&P/TSX Composite Index over the same period. Since he took over the fund in January, 2015, it has seen an annualized return of 7.7 per cent as of July 31, while S&P/TSX Composite Index has seen an annualized return of 7.2 per cent. (All data is based on total returns, and his performance is net of fees.)
Some of his top holdings in the fund include Royal Bank of Canada , Toronto-Dominion Bank,
decrea, Enbridge Inc.ENB-T +0.37% increa
Canadian National Railway Co. increase
and Brookfield Asset Management Inc.
The Globe and Mail recently spoke to Mr. Moss about stocks he’s been adding and trimming and one of the best-performing names he’s owned in his career to date.
Describe your investing style.
I have a long-term, buy-and-hold mandate and only buy dividend-paying stocks. We do all of our stock valuations in house and don’t rely on sell-side research. We look for companies that are well managed, without too much debt and have a competitive advantage and pricing power, especially today given rising inflation.
I have a target weight for every stock in the portfolio. The maximum is 7 per cent to avoid too much single-name risk. If the stock goes above its target, I’ll trim it back. On the flip side, if it’s underperforming and I don’t see a good reason for that happening, I’ll add to it. I don’t like to take on a lot of sector risk either. I would rather try to add value through stock selection and buying higher-quality names that can hopefully outperform over the long term.
We have less than 2 per cent cash in our funds. To us, having a large cash position is a form of market timing. My job is to manage equity funds. I don’t feel it’s my role to be an asset allocator. Also, having too much cash can end up being a drag on the portfolio.
What have you been buying or adding?
Stocks we’ve been adding to recently include Waste Connections Inc., WSP Global Inc. and Colliers International Group Inc. These are all high-quality stocks, in my opinion, that we already own that have corrected significantly. All were trading below our target weight, so we added to them. Using the example of Waste Connections, it’s a well-managed company, and the space is a great place to be in times of high inflation and economic uncertainty. The garbage collection business has very little seasonality and correlation with GDP. It can also keep up with inflation.
What have you been selling or trimming?
We have been underweight energy for years but added a significant amount of energy to the portfolio last fall, including names such as Cenovus
decrease
, Canadian Natural Resources Ltd. decrease
and Arc Resources Inc.
. We’ve benefited from the sector runup earlier this year and have been trimming those names in the past few months. The stocks moved ahead of our target weights. The cash created from the trimming allowed us to do the buying mentioned earlier. Name one of the best stock picks you’ve made in your career to date.
Cargojet Inc. is a name I’ve owned in various mandates since late 2013, when the stock was in the $13 to $14 range. It’s a great little business that owns about 95 per cent of the overnight air cargo business in Canada. The stock has been fairly weak over the last year or so but is way up from my initial investment, currently trading around $150.
What investing advice do you give family members when they ask?
I just returned from visiting family in Atlantic Canada and people are naturally worried about their portfolios being down. I try to bang home the point that investing is intended to be for the long term. I try to stay away from the hot stock tips. If they really twist my arm, I’ll tell people to buy Brookfield Asset Management. I’ve owned the stock for about 15 years. It’s a well-managed company that has been able to compound its invested capital by more than 15 per cent over the last two decades, which we feel can continue. You’re not going to double your money next week, but it will be a very good company to own over the medium to long term.