Investor not letting market swings, the threat of recession keep him

127
5
Investor not letting market swings, the threat of recession keep him

James Telfser is not letting market swings and the threat of a recession keep him from snapping up stocks he thinks will do well down the road.

''No shortage of opportunities to deploy capital for the long term,'' says Telfser, managing partner and portfolio manager at Aventine Investment Counsel in Toronto, whose firm manages about $220 million in assets.

That means investing in a mix of stocks, bonds and alternative assets, Mr. Telfser and Aventine said.

We're trying to build unique portfolios that can generate higher risk-adjusted returns, he adds.

The firm's balanced composite - the average performance of its accounts that include a mix of equities, fixed income and alternatives, depending on the client - has returned about 3.8 per cent so far this year. The company has experienced an annualized return of 4.3 percent in the past three years and an annualized return of 6.3 percent since its inception in June 2009. The performance is based on total returns, net of fees as of August 31.

The Globe and Mail asked Mr. Telfser about what he's been buying and selling and a technology stock he wishes he never sold.

We use a 'core and explore' approach. Core includes high-quality compound growth stocks that we might 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 focus a lot on alternatives when exploring 'explore'. It's hard not to be cautious. We believe interest rates have risen so fast, and we don't think the harm has been fully felt in the economy. We're not exactly feeling optimistic about the short term, he said. Many companies we followed have been priced into a recession for years and we tend to focus on much longer-term time horizons, he said. We're optimistic about that through that lens, he said.

While interest rates are not as difficult as in the short term, we expect to see interest rate cuts in the long term as inflation continues to drop. We've never really stopped finding good opportunities, and it depends on where you look. This year, a number of defensive stocks have been hammered, such as 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 - the short-term environment is so murky. We've been surprised that the economy has been as robust as it has been. Short-term economic contraction will likely occur. How deep and severe it will be is still unknown.

What are some things you have been buying recently?

We bought Danaher Corp. dhr-n a couple of months ago. The tech giant, based in Washington, D.C., has a bioprocessing division that helped overcome the pandemic. It also has an environmental and applied solutions business that will trade independently when spun out later this month. We think it's a good time to get it done, and the company's bioprocessing business's bottoming out. It just put out a bid to buy Abcam PLC ABCM-Q, a top global supplier of protein consumables. Abcam is the Amazon.com Inc. protein producer for firms making formulas.

We have also recently added to our position in Canadian special food manufacturing and distribution company Prime Brands Holdings Corp. PBH-T. '' We think it's a good buy now. Inflation costs have affected the company, and it took a while to expand its margins. We believe that premium brands will be able to exhibit free cash flow growth in the next few quarters. It may eventually use some of that money to start making acquisitions again. It has been quiet on that front since it acquired Clearwater Seafoods LP in late 2020 from a coalition of Mi'kmaq First Nations.

What have you been doing for a living? What have you been doing for a living?

We recently trimmed our shares in Starbucks, SBUX-Q. We continue to hold the stock but have cut it back significantly. The economy in China hasn't been as robust as people had hoped it would be coming out of pandemic lockdowns. In the near term, spending may slow down in North America.

We've also been selling hotel stocks, particularly 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 percent in the past few months, compared to 15 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.

Open Text Corp., OTEX-T is a stock we sold in November, 2022. In August 2022, Microfocus International PLC acquired the company at a steep price. After then, the stock fell by 50 per cent from its highs in 2021. We felt that with the acquisition and our view of the market, we felt it was a good idea to get out of the stock. It's now trading above where we exited it at around $38 a share. We went against one of our core tenets in 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 diversify your portfolio, it's crucial to have a wide variety of assets. To knock it out of the park by investing in one area, it can also backfire, so it's crucial to have a balance between the two. Investing is about finding companies run by top CEOs and letting them do all the work for you.

This interview was edited and condensed.