David Fingold, vice-president and senior portfolio manager at Dynamic Funds
Focus: U.S. and global stocks

MARKET OUTLOOK

We have no targets for market averages and do not manage money relative to the indexes. Our funds 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 Dynamic Global Asset Allocation Fund, a balanced fund with a concentrated portfolio of equities and fixed income.

We have a positive medium-term view of companies we own in cyclical industries. The industries we presently like include but are not limited to Life Science Tools (Danaher, Thermo Fisher Scientific), Medical Devices (Hoya), Sensors (Halma, Hamamatsu Photonics), Construction (Belimo), Defense (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 Ingredients (Givaudan), Animal Health (Zoetis), Coffee (Strauss), Retail (Dollar General) 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 Banking, Hospitality, Insurance, Commercial Aerospace and Energy therefore we have no investments there at all. The fixed income positioning of Dynamic Global Asset Allocation Fund is zero weight corporate bonds and no exposure to duration. Our favored currencies are the US 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. They buy the index or use a closet index portfolio manager and take 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.

TOP PICKS

Lowe’s Corporation (LOW NYSE)

Lowe’s is a Mooresville, NC home improvement retailer. Recently they restructured their business to close their profitability gap with key competitor Home Depot. They have significant scope to increase the revenues per location and drive higher operating profit margins. We believe margins can increase by several percent as they address product availability, continue to enhance their appeal to the professional trades and drive traffic to their online platform. Their real estate footprint is more rural than its peer and there is an interesting exposure to the exodus we are witnessing from cities. Consumers have pivoted spending to their homes and work- from-home has driven further home upgrades, in particular for home offices. There should be pent up demand as the professional trades were working on exterior projects during the lockdowns and can now work on home interiors.

Sika AG (SIKA SWX)

Sika is a Swiss specialty chemical company. Its products are key to clients’ success but frequently represent less than 1 per cent of the cost of a product. The company’s customers rely on Sika for cement admixtures, sealants, membranes and adhesives. Key markets are construction, transportation and infrastructure. Last year the company structure was reorganized into a single share class with one vote per share. They have been able to generate over 20 per cent returns on invested capital and operating profit margin in excess of 14 per cent while growing in the high single digits.

Synopsys Inc. (SNPS NASD)

Based in Mountain View, California, this is the world's 15th largest software company. It has a long history of being a global leader in electronic design automation (EDA) and semiconductor IP and is also growing its leadership in software security and quality solutions. Playing a role similar to computer aided design software in traditional manufacturing, EDA is automating and streamlining chip design. The growth in the market is driven by the increasing demand for specialized semiconductors (5G, Mobility, Cloud, IOT) and the move to leading edge nodes (<10 nm). They should be able to grow revenues in the high single digits and significantly expand their operating margin over the medium term.
 

Elbit Systems Ltd (ESLT NASD)

• Then: US$156.28
• Now: US$133.67
• Return: -14%
• Total return: -13%

Progressive Corporation (PGR NYSE)

• Then: US$79.76
• Now: US$93.67
• Return: 17%
• Total return: 22%

Hoya Corporation (HOCPY OTC)

• Then: ¥8,319.00
• Now: ¥10,415.00
• Return: 25%
• Total return: 26%

Total return average: 12%