Toronto-based Purpose Investments portfolio manager Greg Taylor says the market has rotated from its growth focus to a search for value. He picks two funds for this transitioning market as his ‘best buys’ right now—a value fund with high income and stability and a marijuana fund from the one area of the economy that’s still showing some growth.
Financial professional and frequent BNN Bloomberg media personality Greg Taylor says he has focused on growth strategies throughout his career; nevertheless, value is at the top of his mind at the moment.
Asked if he believes volatility since last fall indicates the arrival of a long-term, secular bear market, he responds: “That’s the big debate among everybody right now.”
In any case, he advises: “Investors need to get used to the volatility.” Mr. Taylor argues that recent rockiness could reflect a sea change in the markets, one that would leave runaway speculative growth-oriented prospects in the dust.
Mr. Taylor is a portfolio manager, chartered investment manager (CIM) and chartered financial analyst (CFA) at Purpose Investments in Toronto, which he joined in December 2017. He began his career in 1999 at Aurion Capital, which was acquired by the Bank of Nova Scotia in 2014. In 2016, he moved to Front Street Capital as part of a fund divestment by Scotiabank. Front Street later evolved into LOGIQ Asset Management, then Purpose Investments.
Market rotates from growth to value
In the decade since the global economic crisis, central banks have aimed to create stability through quantitative easing (when central banks purchase government bonds or other assets to raise liquidity), by keeping interest rates very low, and even by giving ‘dovish’ statements about the possibility and pace of rate hikes in an effort to keep the capital markets calm. Mr. Taylor argues that, since economic data has become stronger, central banks have pulled back and offered more hawkish remarks about interest increases to “let the markets walk on their own”.
Nevertheless, he concedes, “We’ve had a good rebound in the last few weeks,” since US Federal Reserve Chair Jerome Powell’s gentler followup to relatively aggressive interest-related commentary in January. The analyst says investors witnessed “a really narrow market in the last year dominated by the FAANG names”. However, he adds, “we’ve seen a bit of a crack in that trade,” such as when Apple Inc. shares plummeted after giving bad guidance.
In the last few months, technology has retreated from the front of the stock market pack. “We’ve had a bit of a rotation toward value. Value-oriented stocks had been doing badly for the last few years.” As growth-focused businesses struggle, investors are becoming more willing to pick up undervalued companies again.
Cyclical sectors of the market, such as the financial, materials, and energy segments, boast solid potential.
Poor US dollar performance could speed up sector rotation toward commodities, the analyst adds. “The US dollar has become kind of a crowded trade.”
Mr. Taylor also notes, “Canadian small caps have been ignored and left for dead and that’s created a lot of volatility in that sector and also setting up some opportunities . . . but it might be a little early to tell on some of those.”
A fund with high income and stability
Mr. Taylor recommends his first ‘best buy’, the Purpose Premium Yield Fund (TSX—PYF), because of the safety and stability of its underlying assets.
“It’s a good diversifier . . . that has a little more safety built into it.”
The analyst explains that the fund includes a combination of stocks with covered calls and cash-covered put options to protect against volatility. Made up of options tied to larger-cap US stocks, the fund tends to perform well when the market is restless. It also offers a yield of 5.3 per cent annually.
A marijuana fund for growth
Mr. Taylor’s second ‘best buy’, the Purpose Marijuana Opportunities Fund (NEO—MJJ-NE) is based on “the one” growth area in Canadian markets recently, cannabis.
“There’s a lot of excitement about it . . . but people are going about it the wrong way,” says the analyst, who points out that MJJ is the first actively-managed cannabis mutual fund in the world.
Many have purchased Horizons ETFs’ passive marijuana index fund (TSX—HMMJ) or bought individual stocks, says Mr. Taylor. That leaves investors either over- or underexposed to the major marijuana names.
MJJ, on the other hand, is made up of about 30 per cent US cannabis companies and 60 per cent Canadian peers, plus around 10 per cent in cash at present. However, that allocation can shift completely as necessary; the fund takes profits and holds onto the extra cash from gains so it can purchase more pot company shares when they retreat anew. “The sector does have the periods where it goes parabolic,” says Mr. Taylor. Since it started trading on Feb. 1, 2018, the fund has been about 40 per cent ahead of HMMJ.
The fund includes such dominant marijuana names as Canopy Growth Corp. and Tilray Inc., but the rest of the underlying companies have smaller capitalizations, such as HEXO Corp. and OrganiGram Holdings Inc. and thus more room to grow.
This is an edited version of an article that was originally published for subscribers in the February 8, 2019, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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