Fund manager Donald Coxe takes issue with those who argue that the U.S. stock market is undervalued. "The market is not cheap," he said.
The chairman and chief strategist of Chicago-based Harris Investment Management Inc., a unit of Bank of Montreal, said the commodities and capital goods industries that supply or rely on the commodity sectors account for almost one eighth of the Standard & Poor's 500-stock index.
And those sectors, which he expects to lead the market "through the next couple of decades," are supplying "an amazing high proportion" of the total profits. "Meanwhile, the rest of the market has a much higher P/E [price/earnings multiple], led of course by my bête noir, the tech group," Mr. Coxe said.
It therefore comes as no surprise that Mr. Coxe retains his preference for the Canadian market over its U.S. counterpart. The S&P/TSX composite index has a significantly higher weighting in commodities and commodity-related issues than the S&P 500. And it has a heavy weighting in bank stocks -- a group he has been recommending U.S. investors load up on for the past three years. Add that group's approximately 35-per-cent weighting to the 25 per cent of the commodities and related industries "and what you have got is over 50 per cent of that market, which looks very attractive."
His personal portfolio "is overwhelmingly invested in Canadian stocks," he said. "I have been in Canadian stocks for the last four years."
He recommends Canadian investors reduce their exposure to the U.S. market, but adds "on the other hand, if you go in and buy stocks like Schlumberger and Halliburton and Phelps Dodge and Freeport-McMoRan, that happen to be U.S. companies but they are great commodity companies, that is different." But generally, "the risks in U.S. stocks are sufficient that when I don't see a lot of upside, my basic instinct is to take money out," he said, adding that he believes the U.S. market is '"really in a sideways mode." Moreover he is no fan of the U.S. dollar.
Mr. Coxe runs the BMO U.S. Value Fund, which has assets of $50.1-million. The fund is up 6.4 per cent so far this year. It had a return of 3.64 per cent in the 12 months ended April 30 and lost 3.63 per cent on an annualized basis in the past three years, and a loss of 2.15 per cent in the past five. The results were hurt by the rise in the Canadian dollar against the U.S. dollar.
Mr. Coxe chose to highlight three stocks from his personal portfolio. They are Canadian Oil Sands Trust (COS.UN-TSX), Suncor Energy Inc. (SU-TSX) and Inco Ltd. (N-TSX).
It was the duration of Canadian Oil Sands' and Suncor's reserves that drew Mr. Coxe's attention to the issues. "I want a long, long call on crude; I am not interested in short term," he said.
Units of Calgary-based Canadian Oil Sands closed down 75 cents at $73.36 yesterday on the Toronto Stock Exchange, having eased significantly from their 52-week intraday high of $92.75 on April 7. But that is significantly above the 52-week low of $40.35 established June 4, 2004.
Suncor shares have also slipped in recent weeks. Yesterday they closed up 82 cents at $46.64 on the TSX, which contrasts with the $51.87 high of April 4. Little more than a year ago, those same shares were changing hands at $31.38.
Mr. Coxe also has high praise for Inco. "They are doing everything right," he said. "They are going to bring on two new mines, which are going to be highly profitable and again, what you are buying is simply the best company in the world at what it does." The projects are the Voisey's Bay project in Labrador and the Goro project in New Caledonia, a French Overseas Territory in the southwestern Pacific. Inco shares have run into a little heavy weather recently, declining from a high of $53.84 on March 4 to yesterday's close of $46.75, down 30 cents on the TSX. The shares set a 52-week low of $39.32 on Jan. 27.
Confident in commodities
BMO U.S. Value Fund manager Donald Coxe says the U.S. stock market is overvalued and his personal portfolio contains Canadian commodity-related issues.
BMO U.S. Value Fund
MANAGER:BMO Investments Inc.
LOAD STATUS: Open-ended
TOTAL ASSETS: $50.1-million
MANAGEMENT EXPENSE RATIO:2.47%
GLOBEFUND 5-STAR RATING SYSTEM: ****
Returns to April 30, 2005
1-year simple rate of return: 3.64%
3-year compound annual: -3.63%
5-year compound annual: -2.15%
Top 10 holdings, As of Jan. 31, 2005
General Electric: 3.60%
Beckman Coulter: 3.02
Exxon Mobile: 2.95
Computer Sciences: 2.73
Caesars Entertainment: 2.07
© 2007 The Globe and Mail. All rights reserved.
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