Full episode: Market Call Tonight for Monday, June 18, 2018
David Fingold, vice-president and 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 don't manage money relative to the indexes. We invest in a concentrated portfolio of high-quality companies that we think will do well over the next three to five years. Our most concentrated funds such as the Dynamic Global Discovery Fund own 20 companies, while a more diversified portfolio like the Dynamic Global Dividend Fund owns 25 companies. 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 (Thermo Fisher), property and casualty insurance (Progressive), construction (Belimo, Sika), semiconductors (Inficon), automation (Keyence), composite materials (Schweiter).
Many of the industries we have invested in aren’t deeply cyclical. They include, but are not limited to: Food ingredients (Chr. Hansen), coffee (Strauss), medtech (Straumann), health insurance (United Health), animal health (Zoetis) and payments (MasterCard).
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 commercial aerospace, automotive, energy and mining and therefore have no investments there at all. We’re also concerned about the extremely high valuation and lack of growth of companies in the utility, REIT and telecom industries and have no investments there. 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, the Japanese yen and the Swiss franc.
Investors should consider whether they’re taking appropriate risks with respect to commodity prices, interest rates and currencies. Most investors don’t. 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.
SIKA AG (SIKA SW)
Based in Baar, Switzerland, Sika is a specialty chemical company. 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’ve been able to generate returns on invested capital of over 20 per cent and an operating profit margin in excess of 14 per cent while growing in the high single digits.
STRAUSS GROUP (STRS IT)
Based in Petah Tikva, Israel, the 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. Strauss recently purchased full ownership of their 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, 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.
HAMAMATSU PHOTONICS (6965 JP)
Based in Hamamatsu City, Japan, this company makes tubes and semiconductor devices that produce and detect light and ionizing radiation. They have a leading market share in the production of photomultipliers and scintillators. They also dominate important niches in X-ray sources, X-ray detectors, image sensors and deuterium lamps. These products are critical components in life science tools, semiconductor capital equipment, measuring-while-drilling tools and high-energy physics projects. They maintain gross margin around 50 per cent and their operating profit margin is around 20 per cent, while investing about 10 per cent of sales in research and development.
PAST PICKS: AUG. 14, 2017
KEYSIGHT TECHNOLOGIES (KEYS.N)
- Then: $41.78
- Now: $61.50
- Return: 47%
- Total return: 47%
ELBIT SYSTEMS (ESLT.IT)
- Then: 47,390 ILs
- Now: 43,800 ILs
- Return: -8%
- Total return: -6%
KEYENCE CORPORATION (6861.JP)
- Then: ¥51,380
- Now: ¥66,840
- Return: 30%
- Total return: 30%
Total return average: 24%
Dynamic Global Dividend Fund Series F
Performance as of: May 31, 2018
- 1 Month: 3.5% fund, 1.9% index
- 1 Year: 11.8% fund, 7.7% index
- 3 Years: 14.3% fund, 9.7% index
* Index: MSCI World C$ Performance is Total Return and net of fees – Series F
Holdings as of: May 31, 2018
- MasterCard Inc: 5.0%
- Microsoft Corp: 5.0%
- Visa Inc: 4.9%
- UnitedHealth Group Inc: 4.9%
- Keyence Corp: 4.9%
DISCLAIMER: Dynamic Global Dividend Fund Series F inception date March 2006. Portfolio Manager has been on the Fund since inception. Series F units are only available to investors who participate in eligible fee-based or wrap programs with their registered dealer. Commissions and trailing commissions are not payable on Series F units of the Funds but management fees and expenses may be associated with these investments. The indicated rates of return are the historical annual compound total returns including changes in unit values and reinvestment of all distributions does not take into account sales, redemption or option changes or income taxes payable by any security holder that would have reduced returns. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Dynamic Funds® is a registered trademark of its owner, used under license, and a division of 1832 Asset Management L.P.