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Last year brought big challenges for investors – from sinking oil to a diving loonie. For three Canadian money managers, Dec. 31 also brought an end to their charitable competition.
The inaugural Change for Kids Investor Challenge raised more than $150,000 for Holland Bloorview Kids Rehabilitation Hospital in Toronto, as well as boosting awareness for kids with disabilities. That amount is double the $75,000 the managers began the year with, thanks not only to the investment pros' skill at stock picking, but also to donations that came in throughout the year.
Now, the managers are getting ready to hand the money back to Holland Bloorview to fund research and care for thousands of patients each year.
The managers' challenge to eke out returns for their funds doesn't stop with the new calendar year. Already, they are making adjustments and reflecting on the likely trends, from the pace of interest rate increases from the U.S. Federal Reserve Board to the outlook for the energy and commodity sectors, and they're assessing how Canadian companies are likely to fare.
Detailed below is our fourth and final quarterly checkup on these managers' strategies, and their outlook for 2016.
Meanwhile, three new managers are picking up the torch in another year-long challenge to gather donations and make smart investments, seeking to successfully weather the market turbulence ahead.
Barry Allan of Marret Asset Management will invest in the Marret Tactical Energy Fund, focused on the debt of higher-quality, non-investment-grade companies. Bryan Pilsworth of Foyston Gordon & Payne will invest in the FGP Canadian Equity Fund, composed of a mix of Canadian equity securities. And Stephen Carlin, head of equities at CIBC Asset Management will invest through the Renaissance Canadian Dividend Fund in a diversified portfolio of primarily Canadian dividend-paying stocks.
Donations of cash or securities can be made here.
The manager: George Lewis
The fund: RBC Global Dividend Growth
Year in review and outlook:
The fund got its biggest boost from stock selection in the euro zone last year, Mr. Lewis said, noting that euro zone holdings produced double the region's benchmark return of 18.2 per cent. A focus on telecom stocks, both in Europe and Japan, also proved to be good for the fund last year.
For Mr. Lewis, focusing on companies that pay dividends that can grow at an above-average rate meant missing out on strong performers such as Amazon.com Inc., Google's parent company Alphabet Inc., and other non-dividend-paying stocks. But there were plenty of other names that performed well and fit the fund's strategy, such as CVS Health, MasterCard Inc. and Microsoft Corp.
Looking back on 2015, Mr. Lewis said the biggest surprise wound up being oil's persistent weakness, "which has negatively impacted the energy sector, as well as parts of the industrial economy, and led to weaker overall global growth."
For the coming year, Mr. Lewis will be looking for signs of inflation, which could help "kick-start a lacklustre global economy," he said. The "pace of U.S interest rate rises will be key to helping determine market movements and any resulting change in investor sentiment."
The fund's positioning for the year ahead isn't changing. And no wonder – RBC said the fund's return for 2015 was 22 per cent, gross of fees.
The manager: Lesley Marks
The fund: BMO Asset Allocation
Year in review and outlook:
A focus on the United States helped this fund in 2015. "Our exposure to U.S. equities, which was unhedged, did quite well because the market outperformed the Canadian market. As well, our exposure to the U.S. dollar added hugely to returns," Ms. Marks said.
Ms. Marks said the balanced fund – which can adjust its asset mix between bonds and equities – might consider adjusting its asset mix this year to invest more domestically, as the relative attractiveness of the Canadian market improves compared to the United States and Europe.
In 2016, Ms. Marks said she may shift her focus from Canadian companies with extensive U.S. operations, such as Alimentation Couche-Tard Inc., to domestic firms with a global business focus and commodity exposure.
If earnings expectations in these in these sectors stop declining, stocks could start to outperform, she said.
But it's hard to know when the money will begin to flow back into these sectors, where many managers are underweight. "There's a lot of optimism and expectation for earnings growth in some of these Canadian names that have high revenue exposure to the U.S., but there's no optimism in the energy and materials sectors," Ms. Marks said.
Ms. Marks said that the fund's strategy to invest in Canada where companies have exposure to the U.S. economy has protected against the troubles brewing in China and other emerging markets. She said the fund was up 4.6 per cent last year.
The manager: John Wilson
The fund: Sprott Enhanced Equity Class
Year in review and outlook:
Mr. Wilson had long been waiting for a move by the Fed to raise rates. "Now we get what we thought we'd get – which is a lot of volatility," he said.
But he's not overly concerned about that. "I don't think we're heading into a bear market here as much as we've come down and we're retesting lows from September and October. To really have a bear market, you need something to really be wrong." The story to watch this year will be job and wage growth in the United States, Mr. Wilson added.
Mr. Wilson's forecast for the early part of 2016 is for an earning season and guidance that's not nearly as bad investors are fearing, and a domestic jobs growth picture in the U.S. that stays strong. "But the No. 1 risk I had last year is the No. 1 risk I have this year, which is the [U.S.] dollar," he said. "If it keeps streaming higher, eventually that's going to cause a problem somewhere."
Mr. Wilson isn't invested in oil, or particularly bullish on the sector right now, but he may want to take a closer look at energy later in 2016. That could lead him back toward increasing Canadian investments in his fund.
But for now, given the heavy Canadian exposure to commodities and financial firms that are tied to them, Mr. Wilson sees more opportunities in the United States.
Mr. Wilson said the fund's return was 3.9 per cent last year.
The investments
RBC Global Dividend Growth Fund
Top five holdings as of Dec. 31:
- Legal & General Group PLC
- Blackstone Group LP
- CVS Health Corp.
- Pfizer Inc.
- Roche Holding AG
BMO Asset Allocation Fund
Top five stock holdings as of Dec. 31:
- Toronto-Dominion Bank
- Canadian National Railway Co.
- Bank of Nova Scotia
- Manulife Financial Corp.
- Alimentation Couche-Tard Inc.
Sprott Enhanced Equity Class Fund
Top five stock holdings as of Dec. 31:
- UnitedHealth Group Inc.
- Alimentation Couche-Tard Inc.
- CVS Health Corp.
- Intercontinental Exchange Inc.
- Apple Inc.