Tue, Dec 20, 2022 5:00 PM GMT
The coming year is expected to be another tough one for investors given stubbornly high inflation, the spike in interest rates, geopolitical issues and fears of a recession that some believe may already be here.
Consumer-focused stocks such as retailers and banks could be particularly challenged, especially in Canada, given our rising debt levels, says David LePoidevin, senior portfolio manager and senior investment advisor with the LePoidevin Group at Canaccord Genuity Wealth Management in Vancouver.
“The Canadian consumer is very vulnerable, much more so than [that of the] United States,” says Mr. LePoidevin, the No.1 advisor in The Globe and Mail and SHOOK Research’s second annual Canada’s Top Wealth Advisors ranking.
Globe Advisor spoke with Mr. LePoidevin about his outlook for 2023, including his highest conviction trade.
What’s your investment outlook for next year?
We believe commodities and some industrials, such as auto parts manufacturers and engineering firms, could do well.
Our theme for the next year is to avoid names tied closely to the Canadian consumer and the banking sector. We’ve had virtually no loan losses in the Canadian banking sector over the past 30 years, but I think we’ll start to see some next year, starting with the smaller, riskier lenders.
To us, life insurance companies in Canada look far more attractive than banks. Bonds also remain unattractive in our view. I know we’ve seen a rally in bonds in recent weeks, but I believe we’re into a multi-year bear market for bonds, given the high inflationary environment.
To me, the 60-40 balanced funds are no longer working. Five years from now, it’s highly probable that balanced funds won’t exist.
Could you talk more about your view on commodities?
I don’t believe the U.S. Federal Reserve will hike rates to the point of a severe recession, which means commodity demand should remain relatively strong.
We don’t love energy as much as we did a couple of years ago, but I think everyone should have exposure to energy, copper and gold. These stocks are inexpensive, and I believe we’re in a bull market for commodities.
How should investors navigate geopolitical issues?
You can’t predict geopolitical events like what [Russian president Vladimir] Putin will do or what could happen in the Middle East. However, you can find opportunities in selloffs related to these types of events that may seem overdone.
We believe Europe is attractive right now, including companies like Unilever PLC
, SAP SE
, BMW AG
, and Volkswagen AG
. Europe is undervalued, while the U.S. is slightly overvalued. It’s an opportunity many investors aren’t paying attention to.
What investments do you like right now?
My highest conviction trade is preferred shares in non-bank companies like BCE Inc.
and Enbridge Inc.
. The prime rate has gone up dramatically, and some of these pay dividends of around 8 per cent.
These are interest rates we haven’t seen since the early 1990s. It’s exciting. Yes, the Bank of Canada may cut interest rates, but we’re not going back to zero or near-zero per cent interest rates, in my view.
What advice do you have for investors in 2023?
You need to be a stock-picker and a bit of a contrarian. Investors will need to hunker down and buy good businesses.
This interview has been edited and condensed.
- Brenda Bouw, special to The Globe and Mail
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Experienced advisors know how to handle the toughest of years by not succumbing to fearful reactions when it comes to investing. Whether you aren’t sure on where to go from here, just starting out, or looking for another’s expert opinion, contact us at Crossgrove & Company to establish a foundation of trust in building and sustaining wealth.
Reference: Globe & Mail