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

MARKET OUTLOOK

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), construction (Belimo), defence (Elbit Systems), semiconductors (Inficon) and composite materials (Schweiter).

Many of the industries we have invested in aren’t deeply cyclical. They include, but are not limited to:  Cleaning supplies (Ecolab), food ingredients (Chr. Hansen), coffee (Strauss), medtech (Straumann), animal health, (Zoetis) and payments (Visa).

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 and REIT industries and have no investments there. The fixed income positioning of the Dynamic Global Asset Allocation Fund is zero weight corporate bonds and has 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 and 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.

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

ELBIT SYSTEMS (ESLT.O)

Elbit is an Israel-based manufacturer of military hardware. Their product lines include unmanned systems, electronics such as fire control, software-defined radios and radars and cyber systems. The cyber division supplies signals intelligence hardware and software used by the military and domestic security forces of friendly nations. Elbit is well positioned to benefit from the growth of unmanned systems, including the replacement of older drones. Generally electronics spending grows at twice the rate of the growth of defence budgets. The recent acquisition of Israel Military Industries expands their product line into munitions, armour, light and medium arms and rockets. Recently, its backlog rose to a record level of $9.4 billion.

PROGRESSIVE CORPORATION (PGR.N)

Progressive is a property and casualty insurer with a record of sound underwriting, low operating costs and above-industry growth. With the current low interest rates, insurers have to earn profits from underwriting, not interest income. This has led to a firm market that hardens with each catastrophe. Last year their (adjusted) combined ratio was 90 per cent and return on equity was 30 per cent. They have been growing net premiums written at around 15 per cent while the industry is growing in the mid-single digits range.

SIKA AG (SIKA SWX)

Switzerland-based Sika is a specialty chemical company. Its products are key to their 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 PICKS: APRIL 10, 2018

KEYSIGHT TECHNOLOGIES (KEYS.N)

• Then: $52.83
• Now: $73.69
• Return: 40%
• Total Return: 40%

KEYENCE CORPORATION (6861 TYO)

• Then: ¥61,500

• Now: ¥62,780
• Return: 2%
• Total Return: 2%

HAMAMATSU PHOTONICS (6965 TYO)

• Then: ¥4065

• Now: ¥3975
• Return: -2%
• Total Return: -1%

Total return average: 14%

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