Portfolio manager Andrea Horan is photographed outside her downtown Toronto office on Nov. 30, 2016.Christopher Katsarov/The Globe and Mail
Andrea Horan believes there's only one direction for interest rates to go in the long-term, which is up.
The Globe and Mail recently spoke to Ms. Horan, a portfolio manager at Toronto-based Agilith Capital Inc., about some of the winners and losers in a rising-rate environment, including her own picks. She also spoke about why her firm doesn't invest in resources and the one stock that got away.
Who are you investing for?
Our client base is mostly high-net-worth individuals. We work pretty hard to make sure that, when we bring on new clients, they have a long-term investment horizon of three-to-five years at the minimum. That allows us to manage with a long-term perspective and not necessarily to try to make sure every month is a winner, because sometimes the market gets out of sync.
If you're worried about month-to-month returns as a portfolio manager, it forces you to play momentum. You can't afford to do what you think is right, because you have to do whatever the market is doing.
Even the most seasoned professionals struggle, with all of the information they have, to time the market.
What's out of sync today, in your view?
In terms of broad macro trends, we've had the view that yields were unsustainably low and they were being held down by the actions of global central banks … There is only one long-term direction for interest rates, which is higher.
In the meantime what was happening in the equity markets was, people who couldn't find yield in the fixed-income market were forced to look for it elsewhere.
You could tell things were off kilter because people were investing in the bond market for capital appreciation and in the equity market for yield, which is completely backwards.
What are some of your top holdings?
We've been short utilities, especially ones with stretched balance sheets, which are a lot of them, and have been long U.S. financials, like JP Morgan, and Canadian technology focused on the export market. It's not Google, Facebook and Netflix. It's the suppliers of network equipment and enterprise software. We also like Canadian exporters which are undervalued, such as Martinrea. An example of something we're short is Emera, a utility company, just because they're constantly accessing the debt market.
We are a non-resource fund. We don't invest in materials or energy. It left us on the sidelines as energy had its big recovery, but kept us out of the worst of the damage last year. We've felt the Canadian market was very overexposed to resources. We're more focused on business models and financial statement analysis.
What have you been buying lately?
Over the last month, we increased our position in Canadian life insurance companies. We've held our position for a long time, but increased our holding as the yield curve started to move up. This sector is a very early beneficiary of a steeper yield curve. These companies got very efficient on a flat yield curve. There should be lots of positive leverage to a steeper yield curve. We have Manulife Financial, Sun Life Financial and Great-West Lifeco. We added to Manulife and Sun Life over the past month.
What have you sold lately?
We've held our portfolio pretty constant because we've been positioned for this move in the yield curve for a while. We are going to let some of our positions play out. We did sell one consumer stock to fund our life insurance investment. We did okay on it. I wouldn't want to name it. It wasn't like it was a disaster. We just didn't see as much upside as insurance.
What stock do you wish you bought?
Currency Exchange International. We were looking at that one when it was $8.50. It had just run up to that level. We thought, "let's let it calm down and maybe we'll get it at $7.90 or something like that." We were trying to be patient, and then it went to $38 last year. It has come down since, but even now it's around $30. We were too cute by half there.
This interview has been edited and condensed.