Canadian resource stocks have had a great run and portfolio manager Shauna Sexsmith remains a believer in those sectors, despite the correction earlier this summer.
"My main thesis is that all of the issues that were driving these underlying commodities and the commodity-based stocks . . . are all the same; nothing has changed" said the vice-president and senior portfolio manager with MFC Global Investment Management. "Global economic growth has not slowed," she added. "This has been a fundamental supply-demand story" and that has not changed.
However, the resource sectors have had a "bumpy ride the last few months" as investors debated whether the U.S. economy might slide into a recession or just see its growth slow, said Ms. Sexsmith, who runs the Elliott & Page Canadian Equity Fund. She is in the growth slowdown camp.
The $430-million fund is up 7.49 per cent so far in 2006, continuing the performance that has seen the fund gain 13.58 per cent in the 12 months ended July 31, 17.1 per cent annualized over the last three years and 12.05 per cent the last 10 years.
There are numerous opportunities to be had in the resource sectors in Canada but that isn't so true in some other areas that are regarded as growth sectors and so Ms. Sexsmith has been turning to the United States. "My choices [in Canada] were becoming fewer and farther between if I wanted something that was good quality," she said. So she lobbied for and got approval to invest in some U.S. stocks as of Oct. 1, 2005. About 10 per cent of the portfolio is now in U.S. issues. It would be higher were it not for the strong Canadian dollar and the strength in the resource sector in Canada. The fund can hold up to 30 per cent in non-Canadian issues.
Its U.S. holdings tend to be concentrated in the technology, health care, and consumer sectors.
The fund has no utility issues and the holdings in the telecom sector centre around wireless, "the 'growthier' part of the telecom sector." There are only two tech stocks currently in the portfolio. "A lot of tech stocks are still overvalued and are not delivering the same kind of growth that they did in the late 1990s," she said. She is also underweight the financials.
Ms. Sexsmith is a growth manager and believes that "growth has come back into its own once again." She is also a firm believer in the bull market. "The first few innings have been played in this bull market but we are definitely not at the end." So she thinks "this is a good market to be invested in" but not the "screaming buy it was in October, 2002."
Her stock picks are drawn from a mix of Canadian and U.S. issues. Her U.S. favourites include Caterpillar Inc. (CAT-NYSE). "If you take a look at the global mining boom, the major piece of equipment they need -- and they all need it -- is the big trucks" and Caterpillar has "got the best equipment by far," she said. Caterpillar's profit has surprised on the upside the last three quarters, she noted.
Ms. Sexsmith also likes Polo Ralph Lauren Corp. (RL-NYSE). "They have got their hands in almost every different area of design that is strong globally," she said. "They have been building up a brand worldwide," she added. Ralph Lauren's return on equity is 21 per cent and the shares, which closed yesterday at $59.33 (U.S.) on the New York Stock Exchange, are changing hands at 17.7 times this year's projected share profit. Ralph Lauren has beaten estimates the last six quarters, she added.
Of Alcan Inc. (AL-TSX), another pick, she said: "I would not be a bit surprised if it does get taken out." Also, the fundamentals of the aluminum market are a plus for Alcan. Alcan has the added advantage in its power supply as 92 per cent of its power is secured through long-term contracts. Alcan ended yesterday's session at $49.77 (Canadian) on the Toronto Stock Exchange.
SNC-Lavalin Group Inc. (SNC-TSX) is "a very high-quality global company" and a participant in the global economic growth, Ms. Sexsmith said. She describes the Montreal-based construction and engineering firm as "one of those stocks that you can put in your portfolio and just hold for years because they are very consistent, steady deliverers of performance," she said. It has a $10-billion backlog and over $1-billion of cash on the balance sheet. SNC Lavalin closed yesterday at $30.96.
She also finds much to like about Gildan Activewear Inc. (GIL-TSX), the Montreal-based firm that has 40 per cent of the U.S. market for T-shirts. Gildan has a "great management team" and is a very low-cost producer, which enables the firm to gain market share while making it difficult for competitors to enter the market, she said. Gildan is currently changing hands at $54.85
Elliott & Page Cdn. Equity A
|Management expense ratio||2.14%|
|Sales fee type||No load|
|Globefund 5-star rating system||***|
|Inception date||Feb., 1994|
Returns to July 31, 2006
|1-month simple rate of return||0.51%|
|3-month compound annual||- 3.29|
|6-month compound annual||- 1.84|
|1-year simple rate of return||13.58|
|3-year compound annual||17.1|
|5-year compound annual||868.00%|
|10-year compound annual||12.05|
Top 10 holdings As of July 31, 2006
|1||Royal Bank of Canada||6.40%|
|5||Bank of Nova Scotia||4.03|
© 2007 The Globe and Mail. All rights reserved.
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