Investors may need to lower their expectations in the years ahead, according to Vijay Viswanathan, director of research at Mawer Investment Management Ltd.
Mr. Viswanathan, who is also co-manager of the Mawer Canadian Equity Fund, which focuses on large-cap stocks, believes slower economic growth will continue.
More protectionist policies, including those promised by U.S. president-elect Donald Trump, could also mean less global trade, which could negatively impact Canadian importers and exporters.
He says Mawer, a winner at the recent Lipper Fund Awards in recognition for strong performance in several of its equity and balanced funds, will stick with "steady-eddie" companies that make good investments over the long term.
The Globe recently spoke with Mr. Viswanathan about what companies he likes, why there should be some "contradictions" in every portfolio and a company Mawer sold years back, but probably shouldn't have.
Who are you investing for?
It's a diverse group of clients split between institutions, such as pension funds and not-for-profit community foundations, as well as high-net-worth individuals.
What's your investment outlook?
The next 10 years may not see the same levels of growth we've seen. It's not the end of the world. Part of it is, we've headed into a stage where there's been a lot of deleveraging. We haven't seen the same level of credit growth. The pendulum also seems to be swinging more toward protectionist themes. That could lead to lower global trade. We don't know how that will play out, but it could be part of the story as well.
How are you positioning your portfolio as a result?
The more things change the more they stay the same, in the sense that we're always positioning the portfolio to be resilient no matter how the future unfolds. It continues to be investing in high-quality businesses run by strong, confident management teams and we're disciplined in terms of how much we're willing to pay. To be resilient, there should be contradictions within the portfolio. For example, we have companies that benefit from a lower-rate environment, and those that benefit from a higher one.
What are some of your top holdings today?
TD Bank and Royal Bank are large holdings. While there are potentially some headwinds for Canadian banks from lower volume growth, we think they're in a reasonable position to withstand if there is a softening in the housing market. Rising rates could be beneficial. Other large positions we have include Constellation Software and CCL Industries. [The fund's top five holdings as of the end of the third quarter include; TD Bank, Royal Bank, Brookfield Asset Management, Bank of Nova Scotia and CCL Industries]
What stocks have you been buying lately?
BCE is one we've owned in the past and have added [in the first quarter of 2016]. We like the business model. I'd argue that Internet service is critical for individuals and businesses. There is also a pretty massive barrier to entry, which leads to wealth creation opportunities. Another one we've added is Pure Industrial REIT [in the second quarter]. Think about warehouses, distribution and logistics-type real estate. They have a footprint in most of the major cities in Canada. It's a steady-eddie boring business providing core infrastructure to commerce. There's a potential tailwind for more e-commerce.
What have you sold?
We eliminated most of our exposure to energy services. For example, we sold Enerflex [in the first quarter] on worries around business fundamentals due to lower demand for their products and services from end customers.
What stock do you wish you bought?
Couche-Tard: We owned it in the portfolio and sold it in the early 2000s. One of the reasons was it didn't feel like the company had the runway for growth. It would fit into the category of error of omission. We did our work and the conclusion was that we didn't think the growth was there. We were wrong. That's one, if we go back in time, we would've held on to.
This interview has been edited and condensed