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Richard Croft of Croft Financial Group.The Globe and Mail

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Money manager Richard Croft isn’t expecting aggressive interest rate cuts this year but says a few trims should help keep the economy from falling into a deep downturn.

“We’re close to a soft landing. The economy is doing okay,” says Mr. Croft, president, chief investment officer and portfolio manager at Croft Financial Group in Toronto, who oversees about $750-million in assets.

Mr. Croft anticipates about three interest rate cuts from each of the North American central banks this year and believes they’re more likely to come from the Bank of Canada than the U.S. Federal Reserve Board.

“Central banks will be reticent to be too aggressive [with interest rate cuts] or stand on the sidelines too long,” he says.

Mr. Croft says interest rate cuts should stimulate the financial-services sector while growth companies in areas such as technology should continue to do well.

“I’ve also bought into the concept, rightly or wrongly, that artificial intelligence [AI] is transformational change, and we’re at the early stages,” he says. “Similar to the start of the internet era, some AI companies will do well, and others won’t.”

His growth portfolio – which includes about 70 per cent equities, 25 per cent fixed income and 5 per cent cash – is up 11 per cent over the past 12 months. Its three-year annualized return is 8.1 per cent and its five-year annualized return is 10.5 per cent. The performance is based on total returns, net of fees, as of Jan. 31.

Globe Advisor spoke with Mr. Croft recently about what he’s been buying and selling and the skyrocketing technology stock he wishes he hadn’t sold.

Describe your investing style.

We have a top-down investing style, so we focus on the macroeconomic factors before delving into specific sectors or companies. We build portfolios that attempt to meet the client’s objectives within their risk tolerance. We have three broad categories: conservative, balanced and growth, which includes a mix of equities, cash and fixed income. We follow a barbell approach with equities, which is a mix of value and momentum stocks. We also do a lot of options trading.

What have you been buying?

E.L.F Beauty Inc. ELF-N, which stands for eyes, lips and face, is a stock we’ve been adding to. It’s one of my favourite stocks right now. It’s a company I think will continue to do well, even in slower economic times. People buy makeup through everything. It’s a low-cost producer that appeals to millennials. The company also had one of the top-rated ads in the recent Super Bowl.

Another stock I’ve been adding to is Bank of Nova Scotia BNS-T, which just came out with some decent earnings. I’ve owned the stock for about 20 years. I like the Bank of Nova Scotia for its international exposure. It also has the highest dividend yield of the Canadian banks. We’ve also been adding some Canadian Imperial Bank of Commerce (CIBC) CM-T.

CIBC and Bank of Nova Scotia have the highest yields, and both are increasing their dividends. We own all of the banks, but those are the two we’ve been adding to lately. We’re also looking at maybe buying more Bank of Montreal BMO-T stock. The banks are good for clients looking for income in their retirement years.

What have you been selling?

I recently sold cybersecurity company Palo Alto Networks Inc. PANW-Q at a loss because its latest earnings fell well below of expectations. I still think it’s a great company, but I thought it would have better earnings than it did. It was a short-term hold for me, about a month, which isn’t typical. I decided to move on and find something else.

We also recently sold Canadian e-commerce company Shopify Inc. SHOP-T after holding it for a couple of weeks. I don’t have a good feel for the company. We also sold it for a small loss after its recent earnings. It wasn’t a big position. It didn’t have the momentum I was hoping for.

Name a stock you wish you hadn’t sold.

Nvidia Corp. NVDA-Q is a stock I sold too early. I think there’s more potential there. I sold it after the company reported its third-quarter earnings late last year. I did well on it but replaced it with Advanced Micro Devices AMD-Q, which I also think has some potential to be competitive with its AI technology.

What advice do you have for new investors?

Understand what you’re investing for – and the risks. You don’t have to make many great investing decisions; just limit the really bad ones. Instead of chasing the next hot story, read up on the magic of compounding. It’s the foundation for building a portfolio.

This interview has been edited and condensed.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 29/05/24 4:00pm EDT.

SymbolName% changeLast
E.L.F. Beauty Inc
Bank of Nova Scotia
Canadian Imperial Bank of Commerce
Bank of Montreal
Palo Alto Networks Inc
Shopify Inc
Adv Micro Devices

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