Veteran money manager Rohit Sehgal, known for his Canadian growth stock picks, expects resurgent technology and financial shares to push the U.S. market to double-digit gains this year, outperforming the Canadian equity market.
“The easy money has been made,” said Mr. Sehgal, vice-president of Goodman & Co. Investment Counsel Ltd. and chief investment strategist for Dynamic Funds, referring to the markets’ strong comeback after the financial crisis. “I see a single-digit return for the Canadian market, and a low double-digit in the U.S. market.”
The big headwind for markets is the U.S. Federal Reserve Board’s plan to end the second round of quantitative easing in June, said Mr. Sehgal, a commodities bull who oversees more than $6-billion in assets.
“But I don’t think it will become restrictive, or take the stimulus off for another six months,” he said. “The central bank will make sure it doesn’t do anything to come in the way of an economic recovery.”
U.S. banks may not have the earning power they had in the past because of their new capital structures, but they could still go up 50 per cent or more from current levels, Mr. Sehgal said.
“We like some U.S. banks like JPMorgan JPM-Nand Bank of America BAC-N,” he said. “We own some industrial names like Joy Manufacturing JOYG-Q. In technology, we like Apple AAPL-Q. We own logistics companies like United Parcel Service Inc., and more recently we have been buying EMC, a data storage provider.”
While Mr. Sehgal was light on Canadian banks from 2003 to 2008, the Big Five now make up nearly 30 per cent of his mutual fund.
“We are getting even more bullish on banks,” he said. “You are getting the best of both worlds, with a very attractive yield and high return on equity in the high teens.” His favourites are Toronto-Dominion Bank TD-T, Royal Bank of Canada RY-T and Bank of Nova Scotia BNS-T, which recently acquired his firm’s parent, DundeeWealth Inc.
Mr. Sehgal, who joined Goodman & Co. in 1998 after a 27-year stint with London Life Insurance Co., runs mainly Canadian stock funds. His flagship Dynamic Power Canadian Growth mutual fund, which owns some foreign stocks, earned an annualized 9.3-per-cent return for the 10 years ending Feb. 28, compared with 8.2 per cent for the S&P/TSX Total Return Index. His younger $757-million Dynamic Power Hedge fund made an annualized 17.6-per-cent gain over five years, versus 6.7 per cent for the same index.
“Rohit has a good record over time, but it has not been for the faint of heart because there have been some pretty wild swings in his funds,” said Dan Hallett of HighView Financial Group.
“His theme of being pretty bullish on commodities hasn’t changed all that much. He has been right for the most part. … In early 2007, his mutual fund held 80 per cent in commodity stocks. That gradually fell to 50 per cent last year.”
Top Metals, Energy Picks
Mr. Sehgal says he remains a fan of resources. Energy stocks make up 30 per cent of his mutual fund and 60 per cent of his hedge fund. He likes companies involved in the Canadian oil sands, such as Athabasca Oil Sands Corp., Canadian Natural Resources Ltd. CNQ-T and Suncor Energy Inc. SU-T “A lot of new projects are coming up,” he said. “We are going to see production grow at a very fast pace.”
With political tensions in Libya and the Middle East raising concerns about oil supply, he expects analysts to raise their oil price forecasts, which will translate into “positive surprises” for energy companies. Crude oil futures CL-FT closed at about $108 (U.S.) per barrel last Friday in New York. “I think the new range for the oil price is about $90 to $100 a barrel,” he said.
