Full episode: Market Call for Tuesday, April 7, 2020
David Fingold, vice-president and senior portfolio manager at Dynamic Funds
Focus: U.S. and global stocks
As bottom-up stock pickers, we don’t normally make market calls. However, in light of the current circumstances we think it is important to emphasize that the current bear market will end. Investors should be considering what will succeed in the future. The leaders of the prior market cycle are rarely the leaders going forward.
We have no targets for market averages and do not manage money relative to the indexes. Our funds, the Dynamic Global Dividend Fund, Dynamic American Fund and Dynamic Global Discovery Fund invest in a concentrated portfolio of high-quality companies that we think will do well over the next three to five years. We also offer the Dynamic Global Asset Allocation Fund, a balanced fund with a concentrated portfolio of equities and fixed income.
When we own companies that are in cyclical industries, we do have a positive medium-term view of the industry. The industries we presently like include but are not limited to: life science tools (Danaher), medical devices (Hoya), sensors (Halma), construction (Belimo), defence (Northrup Grumman, Elbit Systems), Semiconductors (Inficon), Composite materials (Schweiter) and many others. Many of the industries we have invested in are not deeply cyclical. They include but are not limited to: pharmaceuticals (Roche, Eli Lilly), animal Health (Zoetis), coffee (Strauss), retail (Costco) and many others.
When we are negative about an industry, we do not invest in it at all and assess the impact of negative developments in that industry on our other investments. We are presently negative about automotive, energy and mining therefore we have no investments there at all. We are also concerned about the extremely high valuation and lack of growth of companies in the utility and REIT industries and have no investments there. The fixed income positioning of Dynamic Global Asset Allocation Fund is zero weight corporate bonds and has no exposure to duration. Our favoured currencies are the U.S. dollar, Japanese yen and Swiss franc.
Investors should consider whether they are taking appropriate risks with respect to commodity prices, interest rates and currencies. Most investors do not and instead buy the index or use a closet index portfolio manager, taking risks they don’t understand. Simply put. we invest in companies we like and have no exposure to developments in the global economy that concern us.
HOYA (7741 JPY)
Hoya is a Japan-based producer of optical products. They are a leader in health sciences, including endoscopes and lenses for vision correction. They also have a significant position in information technology. They dominate photomasks for the leading-edge nodes of semiconductor manufacturing and hard disk platters for high capacity drives. They have an excellent long-term record of capital allocation, including acquisitions, dividend growth and share repurchases.
STRAUSS GROUP (STRS TLV)
Israel-based Strauss Group is a manufacturer of Middle Eastern salads and dips, coffee, water purification systems and sweets and salty snacks. Coffee is one of the fastest-growing food categories and Strauss recently purchased full ownership of its coffee division, which is growing strongly in Eastern Europe and South America. The water division is growing strongly in Israel and Asia. The dips and spread business continues to be the North American market leader and has been expanding in Europe and Australia and New Zealand. The Israeli business is a leader in dairy, beverage and snack foods and participates in the strong growth of local consumption driven by immigration. Founded in 1933, its current chairperson is Ofra Strauss, the granddaughter of the founder.
LONZA GROUP (LONN SWX)
Lonza is a Switzerland-based contract manufacturer of drugs, including large and small molecules. They provide pharmaceutical companies with an end-to-end solution from trial quantities to finished pharmaceutical products. Their capabilities include highly potent active pharmaceutical ingredients, antibody drug conjugates, monoclonal antibodies, cell therapies, gene therapies and recombinant proteins amongst others. They are also a significant producer of microbial control products and water treatment chemicals. The company has recently grown revenues at around 8 per cent yearly, with a return of over 28 per cent on net operating assets.
PAST PICKS: MAY 27, 2019
ELBIT SYSTEMS (ESLT TLV)
- Then: 50,920 Israeli shekels
- Now: 43,830 shekels
- Return: -14%
- Total return: -13%
PROGRESSIVE CORPORATION (PGR NYSE)
- Then: $80.22
- Now: $77.45
- Return: -3%
- Total return: 1%
SIKA AG (SIKA SWX)
- Then: 152.35 Swiss francs
- Now: 163.35 Swiss francs
- Return: 7%
- Total return: 7%
Total return average: -2%