Barbara Reid, vice-president and portfolio manager with RBC Dominion Securities.
At times, investors can simply go along with market trends. At other times, the only smart approach is to anticipate the worst or end up being run over, says Barbara Reid.
The vice-president and portfolio manager with RBC Dominion Securities sees 2015 shaping up to be one of those scary years. "We have to be in the market but stay out of the way of the market."
Ms. Reid, who advises high-net-worth clients, sees this year shaping up much like 2011 did, a span in which the TSX fell about 11 per cent yet she managed to eke out low single-digit returns for her investors. "People didn't get killed," she says.
For her, the defining characteristic of 2011 was the activity of the big hedge funds, which were shorting securities and adding volatility and unpredictability to the mix. Her successful strategy, which she is putting in place again this year: Find a safe place to play.
"If I buy things that a hedge fund can't short, then I am out of the way of the market, I'm invested, I can get my dividends," she says.
In 2011, that translated into buys such as Pizza Pizza Royalty Corp. "Big dividend, thinly traded, guess what? Not going to get shorted."
Ms. Reid, who is based in Burlington, Ont., is a big believer in using her firm's quantitative analysis to identify stocks and sectors to focus on. The strategy works in most markets but is less effective, she stresses, in periods of high market volatility, like we are experiencing currently. "When you are in a really stable environment, hands down, I look at the quants."
She is also eyeing Keg Royalties Income Fund, specialty printer DH Corp. and Pizza Pizza again. All three have healthy dividend payouts and do not have the big blocks of stock that attract institutional players.
Her advice for investors who want to do their own analysis: Start with the price-to-earnings ratio of any equity that catches your eye. "Once you get the PE multiple, you can go onto the sites Morningstar or Globe Investor. You can pull up the profile" and start to make a determination.
One buy she shies away from is the rise-from-the-ashes turnaround play. "I will buy out-of-favour stocks, I don't have a problem with that. But I will not buy turnaround situations because usually it is a totally mismanaged business. Sometimes it is really difficult to turn a ship."
Ms. Reid spends a fair amount of time listening to experts, looking for ideas and identifying underlying trends. As a result, she has heard all she needs to know about energy prices. "I can safely say that I am sick of listening to people talk about oil," she told her clients in a recent e-mail.
She considers energy stocks dead money for at least the next six months, "or more likely a year." Yes, they look cheap now, and five years hence this will be a minor blip, but there is no need to rush into securities in the beaten-down sector.
"We are going to be waiting for this trade," she advises clients. "We are also going to be waiting for basic materials to play out, too." Her advice: Look for sectors or companies that stand to benefit from plunging energy prices such as Canadian National Railway Co. and other transportation firms.
Casting a glance back at her outlook for 2014, she was eerily accurate in her call for the TSX, predicting it would return 7.5 per cent. It came in at 7.42 per cent, just behind the Dow Jones industrial average gain of 7.52 per cent.
A late-fall meltdown in energy and commodity prices caused the Canadian market to stumble. If her prediction of a 2011-style, volatile and downward market holds true, a turnaround in the energy and commodity-heavy TSX may not materialize.
However Ms. Reid's take is that many investors are narrowly focused on the downside from falling energy and commodity prices. "Everyone is talking about how badly the energy and basic material sectors have done, but no one is really talking about the positive impact that low energy prices will now have on 80 [per cent] of Canadians."
That is potential good news for consumer products companies, as both U.S. and Canadian consumers will have more money in their pockets. "Companies like Unilever, Procter & Gamble, Johnson & Johnson – those are always on my radar. I'm not buying them right now because they are expensive."
That means waiting for a market correction, but not a 2008-sized meltdown.
Until that happens, she will do her best to keep out of the way.