Fund manager Juliette John is bracing for the Canadian stock market to lose wind from its sails this year as interest rates edge upward.
A single-digit return is probably in the cards in 2011 after double-figure returns over the last two calendar years, said Ms. John, who's with Calgary-based Bissett Investment Management Inc. "It's likely that we don't have the same extent of capital-market gains this year because interest rates are likely to move a little bit higher."
Companies' ability to generate strong year-over-year earnings growth, which helped fuel the increase in the stock market, is also "going to get tougher," compared with the upward momentum coming out of a steep downturn in 2008, Ms. John said.
The manager runs the $394-million Bissett Canadian Dividend Fund, which has won a Lipper award in the Canadian dividend and income category for three-year performance to Oct. 31, 2010. Over that time, it posted an annualized return of 2 per cent versus a 1.6-per cent loss for the S&P/TSX Total Return Index.
Because the fund's investment strategy focuses on analyzing the individual stocks of growing companies, it does not have a lot of resemblance to the S&P/TSX Composite Index, she said. "It keeps us away from the more cyclical sectors that don't pay a steady dividend over time."
Ms. John joined Bissett 17 years ago after earning a commerce degree at the University of Calgary. She started as an equity trader before becoming an analyst, then a portfolio manager at Bissett, a subsidiary of Toronto based Franklin Templeton Investments Corp.
Ms. John co-managed the fund at inception in 2003, when it was called Bissett Income Trust and Dividend Fund, and was 60 per cent invested in income trusts. She became lead manager in mid-2008 when the focus changed to Canadian dividend-paying stocks.
The fund is now awash in consumer discretionary names, such as Thomson Reuters, Reitmans and Groupe Aeroplan, relative to the index. These are companies that have delivered solid dividends, have potential for growth over time and can help diversify the portfolio away from interest-rate sensitive stocks, she said.
"If we are able to find securities outside of the really traditional areas like pipelines, utilities and banks, then we are to some extent able to limit the negative reaction to an upward move in interest rates."