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Fiera’s $103-billion CIO says it’s time to buy Canadian stocks

Pump jacks pump oil at an Encana well near Standard, Alberta, May 12, 2014.

Todd Korol/The Globe and Mail

Quebec's largest independent asset manager is betting U.S. stocks have further to fall and is buying beaten-down Canadian shares instead.

Francois Bourdon, who oversees $129-billion as chief investment officer of Montreal-based Fiera Capital Corp., reduced his exposure to equities in December. That meant the firm missed out on the best of the global rally but put it in a good position to go overweight again.

"We don't think we're there yet. We think there's more downside to be had before we get long again," Mr. Bourdon said.

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The S&P 500 Index tumbled 10 per cent from its high on Jan. 26 to Feb. 8 before rebounding to near levels seen at the beginning of the year. But Mr. Bourdon said it will take more than a 10-per-cent correction to make U.S. stocks look attractive again, and he's waiting until the benchmark falls to between 2,400 and 2,500 to start buying -- about eight percent below current levels.

Canada's benchmark S&P/TSX Composite Index, meanwhile, didn't quite hit official correction territory this month but has fared much worse than the U.S. in the longer run. While the S&P 500 is up about 20 percent since the beginning of 2017, the S&P/TSX has gained just 0.3 per cent, making it among the worst-performing developed markets.

As a result, Mr. Bourdon said he's seeing the most attractive opportunities in Canada, which is "getting crushed."

He believes oil prices still have some upside, especially after the 10-per-cent decline that closely tracked the rout in stocks. More importantly, Canada's resource-heavy benchmark tends to perform well late in the cycle, which is where Mr. Bourdon thinks we are.

"I'd say we're in the seventh or eighth inning and we want to be there for the full game," he said. "Generally seventh or eight inning is the stretch when late cyclicals do better."

Energy and materials stocks, which together make up about 30 percent of the Canadian benchmark, tend to outperform late in the cycle. Mr. Bourdon recommends an overweight position on Canada as well as emerging markets, where the fundamentals look strong, and an underweight position on the U.S. and the EAFE region (Europe, Australasia and the Far East).

Bourdon is generally upbeat on the prospects for 2018, and sees a strong global economy, improving corporate profits and a "decent year" for equities. But rates will also continue to march higher, causing more volatility in a market that got lulled by months of unusual calm, and he cautions investors not to panic.

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"When things are moving at 100 miles an hour you need to have your mind running slower," he said. "That's how we try to dominate the volatility."

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