Rising interest rates and economic uncertainty fuel wealth for clients

Rising interest rates and economic uncertainty fuel wealth for clients

Ryan Bushell is holding more cash in his client portfolios than he has in his almost 20-year career, at around 10 per cent right now, because of a combination of high interest rates and economic uncertainty.

''T running from the equity market, we're just taking our time investing any new capital,'' Bushell says of Newhaven Asset Management Inc., which manages about $120-million of his firm's $270-million assets.

The money is earning around 5 per cent in high-interest savings funds, while Bushell waits for better opportunities to invest in select stocks at cheaper prices, which he believes could be coming.

''An exciting process,'' Bushell said.

His portfolios have been down 1.6 per cent over the past year and have seen an annualized return of 12.5 per cent over the past three years. The performance is based on total returns and is net of fees as of August 31.

The Globe spoke with Bushell yesterday about what he is buying and selling and the insurance stock he wishes he owned.

Our clients are most likely to use their wealth for retirement, having earned and saved their money and plan to use most or all of it. Our emphasis is on capital conservation and income production. We depend heavily on Canada's dividend-paying firms in sectors such as utilities, infrastructure, telecommunications, energy, and financial services.

We believe that the current market environment is very unstable. The risk of a significant reset in risky or overvalued asset prices like stocks, private equity and real estate is high, and is driven by the state of the economy, geopolitics, government finances, inflation and interest rates, which are all linked. Bonds have already experienced a significant reset, with long bonds down more than 40 percent in the past three years. We avoided a lost decade of low bond returns for our clients and anticipate that there may be a similar decade in technology equities like 2002 to 2012 given the combination of high valuations, equity concentrations and macro risks. It's why we're obsessed with owning essential businesses that can withstand these risks. We believe that the effects of the increase in interest rates haven't fully permeated the economy over the past 18 months.

What have you been buying lately?

We've been adding to select dividend holdings for clients that were underweight including BCE Inc. BCE-T, Fortis Inc. FTS-T and Emera Inc. EMA-T. '' We also purchased some 5-year reset preferred shares with yields between 8 and 9 per cent on issues that have recently reset for a new five-year term. Most of these issues also have floors in the range of 6 to 6.5 percent, protecting our clients in case of a sudden drop in rates brought on by an adverse macro event.

We have recently trimmed some of our energy holdings that we did well on, including Arc Resources Ltd. ARX-T and Canadian Natural Resources Ltd. CNQ-T. The dividend yields are now less than we earn on cash, so we took a little off the table. It's not a commentary on the oil price - we still like the companies and the sector - it's more portfolio rebalancing and discipline.

IFC-T is a company I met with six years ago and I was very impressed with its expansion plans. I didn't buy it because I was worried about the escalation of catastrophic loss events for property and casualty insurance companies. Even though I was slightly correct in my assessment, I should have relied on the management team to navigate those issues and focused on the opportunity for a good operator and consolidator to succeed despite the risks involved. My conservative and careful nature enables me to weigh uncertain future risks too heavily, and this lesson was a valuable lesson for me that I will use going forward. I won't chase it at these levels, but I will continue to watch it.

Some investors spend more time on a car they want to buy than on a stock they own. In addition, be invested in the process. If markets are irrational, you need to trust what you own to avoid making mistakes, such as panic selling. To succeed, we believe that active interest and understanding of a stable portfolio is essential.

This interview has been edited and condensed.