James Telfser is not letting market fluctuations and the risk of a recession keep him from snapping up stocks he thinks will do well down the road.
'It's worrying about the market in the short term, but we're finding that there's no shortage of opportunities to deploy capital for the long term,' said Telfser, managing partner and portfolio manager at Aventine Investment Counsel in Toronto.
Mr. Telfser and Aventine are aiming to invest in a mix of stocks, bonds and alternative assets.
We're trying to build unique portfolios that can generate more risk-adjusted returns, he adds.
The firm's balanced composite, which includes a combination of equities, fixed income and alternatives depending on the client, has returned about 3.8 per cent so far this year. Over the past 3 years, it has seen a annualized return of 4.3 per cent and an annualized return of 6.3 per cent since its inception in June 2009. The performance is based on total returns, net revenue, as of August 31.
The Globe and Mail recently spoke to Mr. Telfser about what he has been buying and selling and a technology stock he wishes he never sold.
We explore a 'core and explore' approach. Core encompasses high-quality compound growth stocks that we may hold for a decade or more if we think those companies will continue to reinvest capital at attractive rates of return; exchange-traded funds for more passive market exposure, and maybe some unique cash or fixed-income ideas. We tend to prioritize alternatives when exploring 'explore'. It's difficult not to be cautious. We don't think the damage has been fully felt since interest rates have risen so quickly. We are not exactly feeling optimistic about the short-term, he said. Many companies we follow have been priced in a recession for years, and we tend to focus on much longer-term time horizons. So, we're optimistic about that through that lens, he said.
In the short term interest rates will be harder to move lower, but in the long term, with inflation decreasing, we expect interest rate cuts to occur. We have never really stopped finding good opportunities, and it depends on where you look. The financial sector has seen a significant drop in defensive stocks this year, including telcos and utilities, and we've been trying to take advantage of that through products like structured notes.
It's a tough question to answer, as the short-term environment is so murky. We've been surprised that the economy has been so strong for the last few years. The short term is likely to be a short term economic contraction. How deep and severe it will be is unknown.
What are some of the things you have recently bought or added?
We bought Danaher Corp. (DHR-N) a couple of months ago. The medical tech giant, based in Washington, D.C., had a bioprocessing division that was a huge success during the pandemic. It also has an environmental and applied solutions business that will trade separately when spun out later this month. The company's bioprocessing business is sagging, and we feel it's a good time to get it done. It plans to buy Abcam PLC ABCM-Q, a leading global provider of protein consumables. For companies making formulas, Abcam is considered the Amazon.com Inc. of proteins.
We have also recently added to our position in Canadian specialty food manufacturing and distribution company Premium Brands Holdings Corp. PBH-T. '' We think it's a good buy now. The company has experienced significant inflation costs, and it took a while to expand its margins. We believe premium brands will be able to show free cash flow growth in the next few quarters. It may then be able to use some of that money to start making acquisitions again. It has been quiet on those front since it acquired Clearwater Seafoods LP with a coalition of Mi'kmaq First Nations in late 2020.
What have you been selling or trimming?
We recently trimmed our shares in Starbucks Inc. SBUX-Q. We remain holding stock, but we have cut it back significantly. China's economy hasn't been as robust as most thought it would be coming out of pandemic lockdowns. In the near term, spending may slow in North America.
We've also been selling hotel stocks, especially Hyatt hotels Corp. H-N and Marriott International Inc. MAR-Q. We're short both names now in our active U.S. strategy. The hotel prices are a little nuts, and we believe the current prices aren't sustainable. We've seen prices drop 15 to 20 percent in the past few months. We expect occupancy rates to normalize as everyone gets the travel bug out of their system and prices drop more.
OTEX-T is a stock we sold in November, 2022. In August 2022, Microfocus International PLC acquired Micro Focus International PLC at an aggressive premium. After that, the stock plummeted by 50 per cent from its highs in 2021. We felt it was a good idea to get out of the stock, he said, with the acquisition and our view of the market. It's now trading above where we exited it at around $38 yesterday. We went against one of our core tenets at the firm - when you find a good management team and a good company, it's best to hold those names for a long time. To improve your portfolio, it's crucial to diversify it. You can knock it out of the park by investing in a specific area, but it can also backfire, so it's best to have a balance. Investing is about finding companies managed by top executives and letting them do all the work for you.
This interview has been edited and condensed.