The US elections have caused a tidal wave rarely seen on both the stock market and the bond market. Brendon Snow, of Cambridge Global Asset Management, does not embark on the rising wave.
“I do not remember such a turnaround where the psychology of investors has gone from pessimism to euphoria,” says the manager of Toronto.
In his view, the stock market hike, repeated peaks and flash turning in financial and cyclical securities mostly reflect a rush of investors misplaced and eager to redeem their year.
“In January, everyone was afraid of deflation. Now, investors are unreservedly buying the hope for Donald Trump’s pro-growth policies, “the 37-year-old manager said in an interview.
Industrial and bank stocks in particular have risen so quickly that Mr. Snow cashed gains in certain long-term investments, such as railway Canadian Pacific (Tor., PC, $ 193.23), the distributor of machinery Finning (Tor., FTT, $ 26.39) or the engineer Fluor (NY, FLR, US $ 54.17), whose courses “had preceded the events.”
The manager also reduced its investments in some regional banks. He has added to his actions against the insurer in damage Chubb (NY, CB US $ 133.24), which still has a lot of distribution and operating synergies to be drawn from her marriage to ACE.
Cash of 18%
The amateur of cheap quality titles found fewer shoes to his foot for quite a while already. Its cash holdings have been around 18% of the portfolio for 18 months.
“We prefer to remain patient and wait for opportunities to run after a train is running. Our liquidity provides us with a lot of flexibility, “said the manager of the Cambridge Canadian Equity Corporate Class Fund.
If some targeted securities dropped from 8% to 15%, for example, it would be a buyer.
In the health sector, the portfolio has purchased the title of Swiss pharmaceutical Roche , who suffered Donald Trump tweets about drug prices.
“His medications are less prone to pressure from the authorities than others,” says Snow.
Its portfolio continues to hold the pharmacist Walgreen Alliance Boots (NY, WBA, US $ 86.06), which is gaining market share regardless drug prices. The multinational should also benefit from economies of scale in the purchase of the chain Rite Aid (NY, RAD, US $ 8.17), which is expected to close shortly.
However, a much more pronounced drop in prices would be required to eliminate cash.
“We are not at all pessimistic, but when the courses already incorporate the good news, the potential is more limited,” he said.
In his view, Donald Trump’s presidency will not bring about regime change for economic growth, inflation and rates that some predict.
“I think investors put too much emphasis on the positive aspects of their policies and not enough on the potential risks of an appreciation of the US dollar in emerging markets or a trade dispute with China for example, The financier.
In this unpredictable environment, US companies whose markets are mostly local should do better, he believes.
Higher rates will of course increase the borrowing costs of many companies. “I’m not sure that many are willing to see their borrowing rate rise from 2.5% to 3.5%,” he says.
The Manager closely monitors the spreads between corporate bond yields and government bond yields at the same time to measure these pressures.
Alphabet, Tim Hortons and Loblaw
Portfolio securities are all chosen for their own merits, regardless of market conditions. Cambridge’s approach focuses on companies with a good balance sheet, high cash flow, sustainable competitive advantage or at least a good power to impose their prices.
In technology, the fund holds the parent company Google, Alphabet (NASDAQ GOOG, US $ 794.20) just for the strike force and massive cash flows provided by its main activities.
“In addition, the company allocates its capital better than before and could monetize less strategic subsidiaries. All this for a lower valuation multiple than the S & P 500, excluding cash, “says the manager.
The franchisor of Burger King restaurants and Tim Hortons, Brands International Restaurants (Tor., QSR, $ 64.41) also ranks among the 15 largest fund investments. “Franchising is very profitable, even more so in the hands of a seasoned operation that wants to increase the return on cash flow and margins. The company also quickly repays its debt, “he said.
Last fall, Mr. Snow said the grocer Loblaw (Tor., L, $ 70.72) by longstanding investment in George Weston (Tor., WN, $ 113.73), its parent company.
“We prefer the value of Weston’s windfall and the potential for its surplus capital, but Loblaw has once again become attractive in relation to the increase in its profits,” said the financier.