Bruce Campbell, president and portfolio manager at Campbell, Lee & Ross
Focus: Canadian large caps

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MARKET OUTLOOK

For fresh capital, the yields in defensive sectors are now actually becoming increasingly attractive. The broader issue is these segments have been over-owned since the global financial crisis and the recent underperformance is skewing their longer-term performance. For fresh capital, these segments offer an attractive risk-adjusted total return looking forward in addition to protection against market corrections but make sure you own companies with earnings growth.

A globally coordinated increase in interest rates is now playing out. Rising rates and pressure to raise rates are being seen in Canada, Europe (with some countries having stopped using negative rates) and the U.S., with many other nations actively guiding to higher interest rates moving forward. Canada looks like it will lag the U.S though, which has negative implications for our dollar.

Financials have been popular, but the Canadian banks are flat year-to-date. Broad enthusiasm for the sector isn't misplaced, but some patience is required as higher dividends, which will ultimately drive the share prices of the sector, may take a while yet to appear. Furthermore, higher interest rates will expose financial institutions to increased default risk as their clients face the challenge of debt repayment.

Given the above we don’t think markets have peaked quite yet, but we're getting closer to the end of the cycle. Skill at asset picking, sector rotation and managing higher interest rates that detrimentally affect fixed income portfolios will increasingly become core competencies in the next few years. Positioning for and against foreign exchange rate moves will also be a key skill. Cash has option value and prudent investors should keep a cash reserve for opportunities that arise as the market rotation theme progresses.

TOP PICKS

Bruce Campbell's Top Picks

Bruce Campbell, president and portfolio manager at Campbell, Lee & Ross, shares his top picks: TD Bank, Paramount Resources and Manulife Financial.

TD BANK (TD.TO)

TD Bank is 50 per cent U.S. retail, which we like, and  it continues to improve. We also expect a dividend increase later in the year with continued expense control.

PARAMOUNT RESOURCES (POU.TO)

Paramount is a mid-size Western Canadian producer with a large liquids portion to its gas production. It gets a premium to WTI for the liquids. After its quarterly report, where weather and capacity constraints impacted the results, the stock is now at an attractive entry point as debottlenecking operations are already underway and growth will resume shortly.

MANULIFE FINANCIAL (MFC.TO)

Manulife is a large Canadian insurer with good growth in Asia as well as continued and growing wealth management exposure domestically. THe stock now trades under 10 times earnings. Given its leverage to higher interest rates, the combination is highly appealing at current levels.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
TD Y Y Y
POU Y Y Y
MFC Y Y Y

 

PAST PICKS: MAY 15, 2017

Bruce Campbell's Past Picks

Bruce Campbell, president and portfolio manager at Campbell, Lee & Ross, reviews his past picks: SNC-Lavalin, Scotiabank and Enbridge.

SNC-LAVALIN (SNC.TO)  

  • Then: $52.07
  • Now: $55.33
  • Return: 6%
  • Total return: 9%

BANK OF NOVA SCOTIA (BNS.TO

  • Then: $75.73
  • Now: $80.21
  • Return: 6%
  • Total return: 10%

ENBRIDGE (ENB.TO)

  • Then: $54.54
  • Now: $40.37
  • Return: -26%
  • Total return: -22%

Total return average: -1%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
SNC Y Y Y
BNS Y Y Y
ENB Y Y Y

 

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