Jason Del Vicario, portfolio manager at Hillside Wealth Management, iA Private Wealth

Focus: Global growth stocks

MARKET OUTLOOK:

The current narrative is that inflation will run hot which will force central banks to raise rates sooner than they would like. We heard this coming out of 2008 and nothing materialized. We have recently had our eyes open to business models that excel during inflationary times. For those who wish to learn more Berkshire Hathaway’s 1983 annual letter is a must read. Buffett walks the reader through an example highlighting how businesses with scarce intangible assets (such as a brand, installed base, network effect) are preferred to hard asset businesses (commodities, real estate).

The simple explanation is that hard asset business tend to be capital intensive and while inflation can lead to increased revenues (prices rise) it also means that expenses will rise with inflation as well, depressing profits and valuations. The asset light business model can increase prices without requiring a lot of capital to do so and are thus favoured. We continue to scour the globe for companies that have: high/stable margins and returns on invested capital, asset light business models with little to no debt, run/owned by founders and trading at a valuation that makes sense. Not easy (!) but the U.K. and Hong Kong present some interesting options at this time.

TOP PICKS:

Constellation Software (CSU TSX)

There is method to my madness of constantly having Constellation Software as a top pick. High quality predictable businesses such as Constellation Software should be accumulated on weakness (CSU is off nicely from all time highs) and never sold for as long as their returns on invested capital are elevated (which they are). Period.

A2 Milk Company (A2M ASX)

A2 Milk is a Kiwi/Aussie listed company that was the first to produce A2 protein only milk products. We first bought them at AUD $14 and have since added to the position at AUD $9, $7 and most recently AUD $5.75 as the stock has tanked 70 per cent+ from their 2020 highs. The company has fallen out of grace and issued no fewer than four guidance reductions however we, along with management, feel the current issues are just that, current. The stock has been punished offering investors a rare opportunity to accumulate shares at very attractive prices assuming they can get back to pre-pandemic earnings levels.

Biosyent Inc. (RX TSXV)

Biosyent is a long term position for us. As is typical with growth oriented companies, the company was overvalued followed by a lengthy period of having gone nowhere. Fast forward to today, we find the shares decidedly undervalued with many catalysts ahead to continue to grow shareholder wealth. Very well run with the founder owning ~17 per cent of outstanding shares; nicely aligned with shareholder interests.

PAST PICKS: July 6, 2020

iShares 20+ Year Treasury Bond ETF (TLT NASD)

• Then: $162.92
• Now: $137.32
• Return: -16%
• Total Return: -15%

Kirkland Lake (KL TSX)

• Then: $41.93
• Now: $43.05
• Return: 3%
• Total Return: 4%

Constellation Software (CSU TSX)

• Then: $1,558.83
• Now: $1,758.94
• Return: 13%
• Total Return: 13%

Total Return Average: +1%

Company Twitter Handle: @hillside_wealth

Personal Twitter Handle: @jasondelvicario

Company Website: www.hillsidewealth.ca

Blog: www.hillsidewealth.ca/blog/

Other: Jason Del Vicario (www.linkedin.com/in/jasondelvicario) or Hillside Wealth Management