Daniel Dupont | Portfolio manager, Fidelity Investments Canada
Dan Dupont is a fund manager who aims to win by not losing. Protection of capital is key. He buys higher-quality companies, waits patiently until they become bargains and avoids most economically sensitive names. His $7.3-billion Fidelity Canadian Large Cap Fund also tends to shine during market turbulence. When North American stock markets sank into the red last year, his Canadian-focused equity fund (F series) gained 14.9%. The fund, which can own foreign stocks, has outpaced the S&P/TSX Composite Total Return Index since he took over in 2011. And he hasn’t lost money in any calendar year. We asked Dupont, 45, why he owns Canada’s three grocery giants and finds tobacco stocks attractive.
What is your outlook for North American markets?
I’m more defensively positioned than the average fund manager, but I’m more cautious than usual. An inverted yield curve for bonds (where short-term interest rates are higher than long-term rates) has predicted the eight recessions of the past 50 years. We’ve already had a steepening yield curve, which doesn’t mean the economic environment will be tougher in the next few quarters, but the odds of a recession are very high.
You own Canada’s three grocery giants. Do their profits benefit from inflation?
Consumer-staples stocks tend to be very defensive. If you can find an oligopolistic market like Canadian grocers, it’s good to put a lot of money there. I bought the three grocery stocks when they got cheap. Metro has an excellent management team, and I have owned its stock since 2009. I bought Loblaw a few years ago. Empire, which owns chains like Sobeys and IGA, is a smaller position. Empire has been going through a difficult time in the current economic slowdown because it doesn’t have discount banners of size. This business is more complex than it seems. Grocers went through difficult operational times during the pandemic and are now trying to navigate an environment where their products have significant cost inflation. It’s still a very competitive, low-margin industry.
Your fund owns Imperial Brands, Altria Group and British American Tobacco. Why are tobacco names attractive when cigarette smoking is declining and their stocks are shunned by environmental, social and governance (ESG) investors?
Tobacco companies are admittedly controversial from an ESG perspective. But I’ve owned them on and off for more than a decade because of their defensive nature. They’re in a stable industry that is not very cyclical. People tend to buy their products despite a recession. Less harmful alternative products, such as e-cigarettes, and price increases on traditional cigarettes can keep the companies profitable despite the rapid drop in tobacco sales. If you pay an attractive price for these stocks, you can have not spectacular, but very good returns.
Why do you own energy plays like Suncor and Canadian Natural Resources?
It’s an unorthodox position for me, but energy was my largest sector in 2020 when the oil price went negative. My patient process tells me to wait for the market to come my way and then deploy capital quickly. I didn’t need to be smart to know that the oil price would go back up. Energy stocks are a bit too cyclical for my taste, but the supply situation is intriguing. Supply has been constrained partly by ESG restrictions on lending to energy companies. It’s tight in North America while OPEC+ controls most of the rest of the production. I don’t know if oil will go up a lot, but supply is very attractive relative to history, so I am more bullish.
How does gold miner Agnico Eagle Mines fit with your strategy?
We bought it when gold prices were lower and Agnico Eagle was cheaper. Gold stocks have a low correlation to the general market, so they’re a good diversifier. They can also be a hedge against central banks doing crazy things. As problems arose in the banking industry recently, they were quick to reliquefy banks to make sure the system was functioning. That is prone to creating more inflation. I believe the U.S. Federal Reserve Board will loosen monetary policy over the next three to four years, and that should eventually be good for gold.