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Manager boosts holdings in U.S. stocks

Wary over higher risk potential in Canada


Portfolio manager Marc Lalonde has been doing a little shopping south of the border lately, a move that reflects his cautious near-term outlook on the Canadian market.

"We have a bit higher risk in the markets generally, and Canada to a greater extent than the U.S.," said the vice-president of Moncton-based Louisbourg Investments Inc. His wary approach on the Canadian market stems in part from its heavy weighting in resource issues -- about 47 per cent of the S&P/TSX composite index is in energy and materials. If the U.S. economy doesn't manage a soft landing, but instead falls hard, it won't be good news for resource issues.

"The challenge today is that the Canadian stock market is not dissimilar to 1999-2000," when technology issues accounted for a major chunk of the index," he said.

Mr. Lalonde has been finding better values in the U.S. than in Canada and, as a result, U.S. stocks now account for 16 per cent of the Montrusco Bolton Canadian Equity Plus Fund. Just six months ago it was as low as 5 per cent. The increased weighting has come about as a result of bottom-up stock picking, some top-down research and a search for greater diversity.

The $74.5-million fund, which gained 4.7 per cent so far in 2006, bettering the S&P/TSX composite's 4.28-per-cent return, is underweight in materials as Mr. Lalonde feels spot prices for most commodities are inflated. He has run the fund since its inception in February, 1998. It is market-weighted in gold and energy, but overweight in industrials. The fund does have some small-cap exposure, but has been limited to 12 per cent for about six months -- at times, it has been as high as 20 per cent. But "we are entering a period where riskier assets -- I define those as emerging markets and/or small caps -- are more vulnerable to the removal of the excess liquidity by central banks; in these kinds of conditions you want to remove some chips from the table," he says.

The fund posted a return of 14.33 per cent in the 12 months ended June 30. The three-year return was 22.15 per cent annualized; the five year return 16.44 per cent and the return since inception 11.46 per cent.

Among his current holdings is Talisman Energy Inc. (TLM-TSX). Mr. Lalonde likes the Calgary-based energy company for a number of reasons, including its growing production. Its exploration activity in Alaska, which has resulted in two shut-in wells so far, has received very little attention to date, which adds to Talisman's potential output, he said. Moreover, Talisman is a particularly attractive takeover candidate for "Asian producers who are known to be paying top price for assets," he said. Talisman shares are currently changing hands at $18.79 on the Toronto Stock Exchange.

Shares of Amdocs Ltd. -- based in the Channel Island of Guernsey -- have also caught his eye. Amdocs is the largest provider of billing systems and services to the telecom industry, he said. It also has a expanding market share and potential penetration in the cable industry and in China. Amdocs shares trade on the New York Stock Exchange, where they (DOX-NYSE) closed yesterday at $37.32 (U.S.).

Mr. Lalonde also likes two drugstore chains, Shoppers Drug Mart Corp. (SC-TSX) and CVS Corp. (CVS-NYSE). Both stocks trade at a discount to industry peer Walgreen Co., but are showing higher growth due to good management, he said. Shoppers closed yesterday at $44.84 (Canadian) on the TSX and CVS at $33.12 (U.S.) on the NYSE.

Transat A.T. Inc. (TRZ.A-TSX) is "a well-positioned holiday travel company," Mr. Lalonde said, which explains part of its attraction to him. Montreal-based Transat recently took over Airline Seat Co., a competitor on the busy Canada-Britain charter flight route, and that cements Transat's position in that travel corridor, he said. The end to discounting in the Ontario market will also further boost profit. Transat shares are currently trading at $26.54 (Canadian).

Shopping stateside

Portfolio manager Marc Lalonde has been been finding better values in the United States lately than in Canada and as a result, U.S. stocks now account for 16 per cent of the Montrusco Bolton Canadian Equity Plus Fund. Just six months ago the U.S. component was as low as 5 per cent.

Top 10 holdings as of June 30, 2006
1Talisman Energy5.90%
3Manulife Financial4.8
4Royal Bank of Canada4.1
5Toronto Dominion Bank3.9
6United Parcel Service Inc.3.9
7Transat A.T. Inc.3.8
8Telus Corporation3.5
9Real Resources Inc.3.4
10Industrial Alliance 3.1

Montrusco Bolton Cdn. Equity Plus

Inception date February, 1998
Total assets $74.53 million
Sales fee typeNo load
RRSP eligibility Yes
5-star rating system4 stars
Asset classCanadian equity

Returns as of June 30, 2006

1-year 14.33

'We have a bit higher risk in the markets generally and Canada to a greater extent than the U.S.,'


© 2007 The Globe and Mail. All rights reserved.

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