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Inside the Market What a $3-billion dividend fund manager is buying, selling and predicting for the TSX

Enbridge President and CEO Al Monaco attends the company's annual general meeting in Toronto on Wednesday May 6 , 2015.

Chris Young/THE CANADIAN PRESS

As a manager of dividend funds, Michele Robitaille is used to playing defence in the market. However, given the current market volatility and signs that the current business cycle is nearing an end, Ms. Robitaille is getting even more conservative in her approach. For the managing director at Guardian Capital Group, which has more than $25-billion in assets under management, that partly means more emphasis on individual stock picking to help protect the portfolio. Ms. Robitaille co-manages about $3-billion across two all-Canadian dividends funds including the larger Guardian Equity Income fund. The all-equity fund returned 5.9 per cent in 2017 and 22.2 per cent in 2016. The fund has seen an average return of about 8 per cent over the past five years. The Globe and Mail recently spoke with Ms. Robitaille about what stocks she's buying and selling as well as her take on the turmoil around NAFTA talks.

What concerns are you hearing from investors today?

In the context of our fund, it would be the impact of rising rates on dividend stocks, which have been underperforming. The concern is how far and fast are interest rates going to run, particularly in the U.S. … is that going to drive inflation higher than what the market is expecting, and how will that spill over into the Canadian context?

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What's your take on where the markets are heading in the short term?

Despite the fairly significant macro risks out there, there are a lot of tailwinds in the market. The biggest one is the level of earnings growth in the U.S. The data out of the U.S. continue to be strong. We do think there's a lot of fundamental support for the market right now. That said, I think it's becoming more clear that we're nearing the end of the business cycle, not only in the U.S., but globally. Over the next few months, we expect more volatility and some more corrective phases in the market. Canada, I think, unfortunately, is poised to continue to underperform the U.S. market. The reality is that growth in Canada is continuing to slow.

How will the turmoil around the North American free-trade agreement affect markets in the short term?

The NAFTA negotiations add an element of uncertainty to the growth outlook for Canada, particularly in sectors such as auto, but really across the board. The market does not like uncertainty – and it provides one more reason not to invest in Canada right now. ... There have been a few studies that have shown that the actual impact to the Canadian economy of a U.S. withdrawal from NAFTA will be relatively limited and manageable. However, there will definitely be a negative headline reaction and there will be an adjustment period as the additional costs of tariffs get passed along to consumers. The recent escalation of trade protectionism is worrying. The resignation of [Donald Trump's top economic adviser] Gary Cohn, arguably the single remaining voice of reason in the administration, is equally worrying.

How are you investing, broadly speaking?

We are already pretty defensive, but are thinking of shifting more defensively as we get to the end of this business cycle … whether that's the end of 2018 or in 2019, we're not sure yet. We are underweight utilities and telecom, energy and infrastructure. We will gradually add some weight to those sectors. We still see this as a very stock-specific market in terms of where we're seeing opportunities and where to add and where to trim.

What stocks have you been buying lately?

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We have been adding to some of our holdings, including Bank of Nova Scotia, which has lagged the rest of the banking group. They recently reported solid earnings and we think they have good operating momentum, particularly in their Latin American operations. I think there's a bit of an overhang because of the impact of NAFTA, which we think is quite manageable. We have been adding to our Enbridge position in energy infrastructure. That name came under pressure last year. We think it represents good value. SNC-Lavalin is another name we've been adding, which is a relatively newer holding in the fund. We think the market is undervaluing the engineering and construction side of the business. We think their legal issues are behind them and a recent acquisition has tied them more to the engineering side, relative to construction, which we think is positive because it's a more stable, high-margin business.

What have you been selling?

We've been trimming Nutrien [the company formed by the merger of Agrium Inc. and Potash Corp. of Saskatchewan Inc.] a little bit. It had a bit of a run-up. We do continue to like the outlook of that business, but in this market, it's prudent to take a bit of profit. We have been trimming our holding in Canadian Real Estate Investment Trust, which has an offer to be taken over by Choice Properties Real Estate Investment Trust. We think the offer is a bit underwhelming … and our appetite to hold it isn't that high so we've been trimming. It's common for us, when there's a takeover bid, to trim part of our position just to be prudent to get part of that value in case the deal falls apart.

What's the one stock you wish you bought?

We looked at [methanol company] Methanex when it was trading in the $50-range [throughout 2017] and it's now around $70. It was hard to figure out what was priced in, in terms of methanol pricing. We just never got comfortable there and then it ran away before we got in.

This interview has been edited and condensed.

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It wasn’t long ago that investing in private companies was the domain of venture capital firms and the wealthiest of investors. Now, average high net-worth individuals are buying in as well.
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