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What Canadian portfolio managers were thinking and buying this past week
Special to The Globe and Mail

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Saturday, October 13, 2018 – Page B14

It was a wild week on the markets and a painful reminder for investors of the stomachchurning feeling of watching the value of a portfolio drop in a matter of minutes. For some professional investors, the selloff was a chance to pick up stocks at a cheaper price, while others did nothing, trying to remain focused on long-term performance. The Globe asked a handful of portfolio managers how they reacted to the latest bout of volatility and what they think could happen next: Craig Jerusalim, senior portfolio manager at CIBC Asset Management Inc., says market swings "create really exciting opportunities for active managers, because even high-quality companies with strong fundamentals still get caught up in the panic selling."

Mr. Jerusalim says this week's market correction "felt fast and furious, but so far it is still of the plain-vanilla variety," given that there was no major shock to drive a severe correction.

"Equity markets, specifically in the United States, had gotten ahead of themselves, and the pullback brings valuations more in line with the decent fundamentals of the economy," he says.

"Further earnings growth will have to be the driver for further stock price appreciation."

Mr. Jerusalim has a positive outlook for the North American economy and is buying more high-quality companies whose stock prices he says were "unfairly punished almost as much as their expensive peers with inferior prospects." Examples include bus manufacturer NFI Group Inc.

and specialty foods company Premium Brands Holdings Corporation.

He has also been repatriating funds that were allocated to foreign holdings back to Canadian equities. "Canadian benchmarks are trading at a much steeper valuation discount relative to U.S.

benchmarks despite clearing some rather large hurdles with respect to trade, infrastructure and energy exports," he says.

Peter Imhof, portfolio manager at AGF Investments and a veteran small-cap investor, recommends investors remain cautious with market volatility expected to continue.

"Pick your spots with names that you may have liked but were looking for better entry points," he says.

Mr. Imhof is adding to positions that have recently reported strong quarters that have sold off with the rest of the market.

One example is Parex Resources Inc., which he says recently reported strong production numbers and some encouraging exploration results. "The company is presently in a strategic review process to possibly sell the company with an outcome before year-end," he says. "I believe the risk/reward looks attractive whether the company gets taken out or remains on its own."

He also bought more Canadian Pacific Railway Limited, which recently raised its 2018 full-year outlook and provided preliminary third-quarter results that were well ahead of consensus. "The stock sold off back to levels that preceded their upward guidance," Mr. Imhof says. "I believe this presents investors with a buying opportunity on a company that will put up strong earnings growth in 2018 and 2019."

Jennifer Radman, vice-president and senior portfolio manager at Caldwell Investment Management Ltd., says her team has been picking up a few specialized U.S. companies including fibre-laser specialist IPG Photonics Corporation, financial services ratings company S&P Global Inc.

and engineering software company ANSYS Inc. "We believe these are good entry points for these names, although they could still see continued volatility," she says.

Ms. Radman is about 30 per cent cash in her Canadian portfolio right now, and hasn't moved to invest that money despite the market pullback. "We have a methodical investment process that focuses more on company-specific catalysts," she says.

François Bourdon, global chief investment officer of Fiera Capital Corporation, says his firm isn't feeding off the recent market dip, at least not yet. "Another 10 per cent down and we would move in for a recovery," he says, adding that his team favours Canadian and emerging market equities compared to those in the U.S.

and international.

David Barr, CEO and a portfolio manager at Vancouver-based PenderFund Capital Management Ltd., says the recent selloff presented several opportunities for his team to buy businesses they like at an attractive price. Examples include private equity and real estate firm KKR & Co. Inc.

and Photon Control Inc., an optical sensor design and manufacturing company.

"We've been able to shift our portfolio to higher-quality names as they came back to a valuation we deemed attractive," he says.

"The end result has been a shift in the portfolio towards quality and a significant decrease in the cash levels of our funds to below 5 per cent, about as low as we've ever been."

Robert Sneddon, president and chief portfolio manager at CastleMoore Inc., says his team is doing some buying on the dip, which is a normal part of their strategy.

"We had portfolio changes coming up that we simply delayed because of the volatility. We did some adjustments on Thursday and will do more on Friday that allowed us to take advantage of lower prices for buys (broad market indices, base metals) and higher prices for sells (some gold and gold producers, natural gas)," he says.

Mr. Sneddon favours more cyclical sectors right now such as energy, base metals, industrials, technology and U.S. financials and is staying away from interestrate-sensitive securities such as bonds, utilities and pipelines. Examples of stocks he's picked up in recent days include oil and gas player Enerplus Corporation, diversified miner Teck Resources Limited. and cloud-based software company Kinaxis Inc.

Cameron Hurst, chief investment officer and portfolio manager at Equium Capital Management Inc., says he's been selling on the recent market drop, but added to short-duration U.S.

bond exposure. "It's actually paying more than 2 per cent now, where before you didn't earn anything," he said.

His firm's cash levels have been rising since mid-September, closing the month at 13 per cent and climbing to about 20 per cent today.

"For some time now, we've been highlighting the significant and growing risks from receding global liquidity, the negative effects of which are best seen in emerging markets," Mr. Hurst says. "Tariffs and trade wars are only compounding the problem and now it looks like we're seeing downward revisions to global growth."

He also says higher debt levels are another sign of a stressed market.

"Investors should be preparing for a period of more modest investment returns and not chasing high-fliers with unnecessary risks, e.g. semiconductors or cannabis." Interviews have been edited and condensed.

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