Full episode: Market Call for Thursday, January 14, 2021
David Fingold, vice president and senior portfolio manager at Dynamic Funds
FOCUS: U.S. and global stocks
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 medical devices (Hoya), sensors (Halma, Hamamatsu Photonics), construction (Belimo, Sika), defence (Elbit Systems), semiconductors (Inficon, Taiwan Semiconductor), 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 grocery stores (Costco), coffee (Strauss), retail (Target) 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 hospitality, insurance and commercial aerospace 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 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: 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 concerns us.
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 one per cent of the cost of a client’s product. The company’s customers rely on Sika for cement admixtures, sealants, membranes and adhesives. Key markets are construction, transportation and infrastructure. 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.
Keyence Corporation (6861 JP)
Keyence is an Osaka, Japan-based company that develops, manufactures, and sells sensors and measuring instruments used for factory automation (FA). The company's products include machine vision and measurement systems, photoelectric sensors, laser scan micrometers, bar code readers and microscopes. Business volumes are depressed by the current recession and are expected to recover with the economy. Areas where we expect strong growth include warehouse automation and consumer electronics, including smartphones.
Taiwan Semiconductor Manufacturing Company, Ltd. (2330 TT)
Based in Hsinchu, Taiwan, this company is the largest dedicated contract semiconductor manufacturer in the world, with roughly 50 per cent market share. The company handles manufacturing for semiconductor and integrated device companies that don't have their own manufacturing facilities. The gross profit margin is over 50 per cent, operating margin is around 30 per cent and return on invested capital is around 20 per cent.
PAST PICKS: DEC. 2, 2019
Keysight Technologies (KEYS NYSE)
- Then: $103.29
- Now: $148.33
- Return: 44%
- Total Return: 44%
Hoya Corporation (7741 TYO)
- Then: ¥10,025.00
- Now: ¥13,920.00
- Return: 39%
- Total Return: 40%
Sika AG (SIKA SW)
- Then: CHF 171.50
- Now: CHF 251.80
- Return: 47%
- Total Return: 48%
Total Return Average: 44%