Darren Sissons, vice-president and partner at Campbell, Lee & Ross

Focus: Global and technology stocks

MARKET OUTLOOK:

Investors need to balance the near and longer term view. Near term we are approaching a risky stage in the markets. Across various market segments volatility has progressively fallen so investors, regulators and central banks are weighing the underlying economic performance, the level of stimulus and inflation prints wondering if the recent cost surges are temporary or otherwise. Come the annual return to school in September the new normal will coincide with rising double vaccination levels. Barring a fourth wave and a subsequent major lockdown, a return to the office in fall will drive higher economic activity, which will stress the prevailing central bank view of temporary inflation.

Other issues weighing on investors’ minds with near to mid-term implications include international politics i.e. the continuing and evolving Cold War 2.0. While the U.S. clearly won the first iteration with Russia the jury is most definitely out on whether China’s economic and political ambitions can be tamed by U.S. sanctions and political maneuverings. The continuing tensions present both opportunity and risk. A sector rotation, also a concern, occurred late in the first quarter and was a positive catalyst for value portions of the market while negatively impacting growth names. That rotation has somewhat reversed in recent weeks but investors remain somewhat cautious and are increasingly owning portions of both strategies.

Bearing the above in mind and looking mid-to-longer term, we continue seeing opportunities in a number of pockets. China and broader Asia are still on sale due to the continuing political tensions noted above. Subsectors in the technology and med-technology sectors remain attractive as are financials assuming a gradual interest rate normalization. Promising opportunities also lie in the recovery thematic and the emerging opportunities in renewables hold great promise. Additionally, oil remains universally hated but in conjunction with REITs, telcos and utilities these sectors offer attractive yields for those seeking bond proxies. Finally, it’s hard to time the market consistently and profitably so investors should always remember extending ownership timeframes leads to better investment returns and outcomes.

TOP PICKS:

Munich Re AG (MUV2 ETR)

1) A serial dividend grower, currently yielding 4.3 per cent, with a decades-long history of dividend increases. 2) A global footprint with broadly diversified end markets. 3) It offers investors a platform to play inflation and higher interest rates as reinsurance is a positive beneficiary of higher rates. 4) Higher organic growth likely as the broader insurance industry is pushing through price increases in response to COVID and the European floods. 5) The company typically targets an annualized shareholder return algorithm of 7 per cent i.e. a 4 per cent dividend increase and a 3 per cent share buyback.

Saputo Inc. (SAP TSX)

1) a serial dividend grower currently yielding 1.95 per cent. 2) A substantial North American footprint with growing Asian and European businesses. 3) It will be a net beneficiary of the COVID exit as dining out, concerts and mass entertainment drive higher margin revenue. 4) The serial growth by acquisition strategy continues to create value for shareholders. 5) The Saputo family own 32 per cent of the business, which tightly aligns their longer term growth ambitions with fellow shareholders.

Vantage Towers AG (VTW ETR)

1) Recent publicly-listed Vantage pays a 1.9 per cent dividend. 2) The company, which was spun out of Vodafone, monetizes the valuation differential between North American Tower REITs and Vodafone’s cell tower business. 3) A healthy €1 billion capital additions budget positions the company for further organic growth or acquisitions. 4) It offers investors a relatively inexpensive platform to play the European 5G rollout.

PAST PICKS: July 30, 2020

Algonquin Power & Utilities (AQN TSX)

• Then: $18.55
• Now: $19.40
• Return: 5%
• Total Return: 9%

Alibaba (BABA NYSE) Sold Alibaba on March 25, 2021 at US$225.58 due to persistent and recurring political interference from both the U.S. (de-listing risk) and intrusive Chinese regulatory initiatives.

• Then: $252.74
• Now: $196.05
• Return: -22%
• Total Return: -22%

LVMH Moet Hennessey (MC EPA)

• Then: €373.85
• Now: €674.00
• Return: 80%
• Total Return: 82%

Total Return Average: 23%