Hi everyone, I'm Darcy Keith, editor of Globe Investor. We'll be getting underway very shortly, please stand by
Good Afternoon and thanks for having us today.
So, I see you are coming in under the Toron avatar. Could you please identify yourself?
Yes, we have two partners, James Porter and Charles Lannon.
OK, so, I'm going to assume these responses will be coming from James, unless noted otherwise.
To start off James, can you tell us a bit about your approach to investing?
We are a long only equity and fixed income investor covering Global and Canadian markets. We believe in portfolio transparency and do all our own research in house.
So, we keep hearing about stretched valuations in North American stocks right now, or at least the view that markets are fully valued. Do you agree with that assessment, and where else can investors go right now?
Charles here - North American equities are more expensive than European or Japanese equities...
within North America there are still some attractive buys, but it is on a case by case basis.
Ok, let's talk about some of those case by case. What sectors are you hot on right now?
Global Equities are clearly more attractive than fixed income, as we are more concerned about valuation in fixed income then we are in equities because Global growth has been and is accelerating.... Within North America, there is often a case for Canadians to own Canadian companies that pay a dividend in taxable accounts. Particularly we like some Canadian banks and Canadian exporters.
We have our first reader question now from Andre
Andre, for our Global Equity portfolio we hold 35 stocks in 9 of the 10 industry sectors (no materials currently). The turnover is about 20 to 30% which works out to about 3 to 5 year holding period.
In our Canadian Total Return Strategy, we own about the same number of stocks, again in 8 of the 10 sectors.
In the Canadian portfolio we recently purchased CCL Industries, one of the world's largest consumer packaging companies with great clients such as P&G...
Globally, we recently added Capital One....
Capital One is priced similarly to larger slower growth banks yet has much better growth prospects as the US consumer recovers.
You mentioned you like some Canadian banks and Canadian exporters a few moments ago. Can you provide us with some names, and what you like about them specifically?
TD Bank would be one of our top banks. Their US business which historically was a bit of a drag, has improved profitability, in addition to a high quality revenue stream with low exposure to capital markets....
In an environment where the Government of Canada bond is sub 2%, the dividends current yield and growth prospects are attractive...
As for exporters, in addition to CCL we like Magna for its strategy to move into higher value added automotive components.
Are current valuations for TD, CCL and Magna attractive right now?
yes, we aren't in an environment similar to that of 2010-2011 where cheap stocks were bountiful. These three names should provide attractive returns over a two year horizon.
Here's another great question from Andrew
As for yield to maturity, it varies with the term and credit quality of the bond. A high quality bond portfolio would yield a bit better than 2%.
People that are investing in fixed income at these prices should be doing so to manage day to day volatility, but they need to understand that medium term return prospects are going to be modest.
So what are you doing for clients right now to squeeze out more yield?
Chasing yield is not the way we approach things and can be a mistake... we look at the investing world through a total return lens....
Yield is means to strong risk adjusted returns, it is not an end in and of its self....
On the equity front we are always looking to hit our target rate while taking as little risk as possible. The decline in the Canadian Dollar has been a great benefit to investors who invest globally as our clients have...
and the strong returns over the past 2 quarters from European and Japanese equities have more than compensated for the low yields on offer in fixed income.
You allude to Japanese and European stocks offering better value right now. Both those equity markets, however, have done quite well of late, begging the question of whether this is really the time to get in. What are your thoughts.
For Canadian investors owning a truly global portfolio also protects purchasing power by having financial assets that are not tied to the Loonie.
We visit with management in both regions regularly. In Europe there is increasing confidence that the core economies are gaining traction and many companies have and will benefit from a lower Euro...
In Japan, the country will return to growth and the corporate reforms which emphasize profitability are taking root.
James, you informed me before the chat began that you were at the Buffet-fest this past weekend. Any key takeaways from the Berkshire annual meeting?
What struck a chord with me was how emphatic Buffett and Munger are about buying quality businesses not stock prices and trading. Very similar to the Toron AMI approach. On a lighter note, Buffett admitted to the audience, that one quarter of his daily calories comes from Coca-Cola!
There were twice as many people as seats and at the shopping area near by one could visit a show home, check out a model railway or buy underwear. Quite the experience.... Munger in particular, emphasized how important it is for the US and China to develop strong levels of trust along with trade. And he also applauded the recent crack down on corruption in China....The crack down on corruption in China is one of the reasons why the economy is slowing, but is absolutely the right policy to generate sustainable growth.
I have to make the journey to Omaha one of these days...
The crack down on corruption in China is one of the reasons why the economy is slowing, but is absolutely the right policy to generate sustainable growth.
As for WTI and the Loonie they are largely the same trade...
Oil will likely be range bound over the next two years. Management teams are much less bullish on oil than Wall Street or Bay Street.
What's your favourite sector right now on the TSX?
Consumer Discretionary and Industrials are our favourite sectors.
OK, one last question from Andre
There are many criteria including; valuation, competitive advantage, visible growth opportunities, cash returns to shareholders and managements track record as stewards of capital.
OK, with that, we have to wrap up. Thanks James and Charles. Any final thoughts?
Charles - volatility could pick up this year as we get closer to the first FED rate increase, but because so many economies are operating below capacity. Prospects of a recession are dim. Given this, decent returns in both Global and Canadian equities over the next couple of years can be expected. We are more pessimistic on fixed income.
James - A reminder to everyone how important a well structured portfolio is taking into account all aspects of risk and your personal situation. In particular Canadians must think more Globally when it comes to investing.
OK, thanks very much everybody for joining us today! That's a wrap for this week
Thanks Darcy for having us today we really appreciate the questions.