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Chris Hensen is senior portfolio manager at Manulife Asset Management. His focus is North American equities.

Top Picks:

Badger Daylighting (BAD-TSX)

Owned in a number of funds, no family or personal holdings.

Have been adding to the name during the recent sell off.

Badger is the leading hydrovac truck (standalone vacuum truck that sucks the earth and other material out of the ground) manufacturer and operator in North America. The company generates returns on capital north of 20 per cent and is expected to grow low double digits over the next 10 years as the expansion into the United States takes hold. What makes their business model unique is their ability to redeploy their fleet from weaker markets to stronger market opportunities across North America. During the economic downturn in 2009 their revenues and EBITDA only declined 9 per cent and 12 per cent respectively. Badger is well positioned to handle the recent slowdown in activity with the energy sector.

Cominar REIT (CUF.UN-TSX)

Cominar is the largest commercial property owner in Quebec and one of the largest REITs in Canada (75 per cent Quebec, 15 per cent Ontario, 10 per cent Western Canada and Atlantic provinces). Its use is 45-per-cent office, 40-per-cent retail and 15-per-cent industrial-mixed use. It has an $8-billion real estate portfolio. and just purchased a $1-billion+ portfolio from the Caisse.

We haven't owned REITs for a number of years as the stocks to us were overvalued. Currently it trades at a discount to book with dividend yield just under 8 per cent. For the last 3 years it has traded at a premium to book with a dividend yield around 6 per cent. Management has done a great job growing the portfolio via strategic acquisitions. They have tripled the size of the portfolio over the last 4 years.

MTY Foods (MTY-TSX)

MTY Foods is a master franchiser of quick service restaurants (QSR) with over 30 banners and approximately 2,600 locations. The "King of the Food Court", with banners that include Thai Express, Sushi Shop, Jugo Juice, Extreme Pita, Mr. Sub and Manchu Wok, MTY is a highly profitable business (return on capital of 20 per cent+) given its franchise model, similar to Tim Horton's, that is consolidating the QSR industry. Recent acquisitions will assist the company in doubling the size of the business in the next 7 years.

Past Picks: October 20, 2014

Empire Company (EMP.A-TSX)

Then: $75.04; No outw: $90.42 +20.50%; Total return: +20.87%

Moody's (MCO-NYSE)

Then: $91.49; Now: $98.04 +7.16%; Total return: +7.45%

MTY Foods (MTY-TSX)

Then: $29.14; Now: $35.83 +22.96%; Total return: +23.64%

Total return average: +17.32%

Disclosure:

Personal

Family

Portfolio/Fund

MTY

N

N

Y

MCO

N

N

Y

EMPa

N

N

Y

Market outlook:

My outlook hasn't changed since my last overview in late October, 2014. I see higher levels of volatility compared to what we've experienced over the last couple of years driven by the divergence of U.S. economic policy versus the rest of world coupled with negative headlines coming out of Europe. It appears that every central bank, excluding the U.S., is in a race to the bottom in terms of interest rate policies. This divergence in policies and economic growth carries with it the increasing probability of higher volatility.

However, as investors, we worry top-down and invest bottom up. Focusing on quality businesses as measured by high and stable returns on capital, businesses with manageable levels of debt and trading at valuations that will provide us with adequate returns has served us well over different market environments. As volatility increases in the market we see the opportunity set increasing as well. A number of these high quality businesses will eventually trade at valuations that will provide us with exceptional returns going forward. The key is to be prepared and have the conviction to act on the opportunities as they present themselves.