Full episode: Market Call for Monday, December 2, 2019
David Fingold, vice-president and senior portfolio manager at Dynamic Funds
Focus: U.S. and global equities
As bottom-up stock pickers, we don’t make market calls. We have no targets for market averages and do not manage money relative to the indexes. Our funds, the Dynamic Global Dividend Fund, the Dynamic American Fund and the 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 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), construction (Belimo), defence ( Raytheon, Elbit Systems), semiconductors (ASML, Inficon), composite materials (Schweiter) and many others.
Many of the industries we’ve invested in are not deeply cyclical. They include, but are not limited to coffee (Strauss), animal health (Zoetis), retail (Costco), payments (MasterCard, Visa) and many others.
When we’re negative about an industry, we don’t invest in it at all and assess the impact of negative developments in that industry on our other investments. We’re presently negative about the automotive, energy and mining spaces. We’re also concerned about the extremely high valuation and lack of growth of companies in the utility and REIT industries and therefore have no investments there either. The fixed income positioning of the Dynamic Global Asset Allocation Fund is zero weight corporate bonds and no exposure to duration. Our favored 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. 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.
KEYSIGHT TECHNOLOGIES INC (KEYS NYSE)
Based in Santa Rosa, California, Keysight provides electronic test equipment. The majority of its business supports wireless network and hardware development and deployment and will benefit from the 5G rollout. They also provide equipment used in testing and developing microelectronics. An important business segment is defence electronics. They are one of small group of companies that provide equipment to test and design electronics used in defence applications. They also provide some hardware used for signals intelligence. Originally founded by William Hewlett and David Packard in 1939 as Hewlett-Packard, it was spun out of Agilent in 2014.
HOYA CORPORATION (7741 TYO)
Hoya is a Tokyo, 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 repurchase.
SIKA AG (SIKA SW)
Based in Baar, Switzerland, Sika is a specialty chemical company. Its products are key to its 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. Recently, the company structure was reorganized into a single share class with one vote only per share. They have been able to generate returns on invested capital of over 20 per cent and operating profit margin in excess of 14 per cent while growing in the high single digits.
PAST PICS: DEC. 27, 2018
STRAUS GROUP (STRS IT)
- Then: ILS 8,260
- Now: ILS 10,890
- Return: 32%
- Total return: 34%
HAMAMATSU PHOTONICS (6965 TYO)
- Then: ¥ 3,650
- Now: ¥ 4,455
- Return: 22%
- Total return: 23%
KEYSIGHT TECHNOLOGIES (KEYS NYSE)
- Then: $59.45
- Now: $103.19
- Return: 74%
- Total return: 74%
Total return average: 44%