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Like many investors, money manager Wes Ashton has been rewarded for betting on big tech stocks that led the market rally so far this year.
And despite their rich valuations right now, Mr. Ashton – co-founder, portfolio manager and director of growth strategy at Vancouver-based Harbourfront Wealth Management Inc. – continues to hold them in client portfolios, believing that technology will continue to drive the economy long term.
His team is also buying stocks in more traditional sectors such as energy, mining and financial services, which they consider cheap with room for growth in the coming months.
“Many of these stocks have been lagging the market this year, and we see that as an opportunity,” says Mr. Ashton, who oversees about $650-million in assets.
The approach, which also includes investments in private alternative assets, has led to an average total return of 5.3 per cent across the firm’s client portfolios for the 12 months ended Aug. 12 after fees. Mr. Ashton says the firm uses a mix of private and public assets to provide clients with more predictable returns over the long term.
The Globe and Mail spoke recently with Mr. Ashton about his investing style and what he’s been buying and selling.
Describe your investing style.
Our approach is mostly value-based. We look for inexpensive stocks that we believe will increase in value over time. That said, it’s been hard to overlook the growth side of the market, especially with some of the big tech names this year. So, we’ve also been tactical and added in areas based on market conditions. We also like dividend-paying stocks and have an allocation to alternative assets, including private real estate, equity and debt.
What’s your take on the current market environment?
We’re in the third year of a U.S. presidential cycle, which tends to be the strongest for equity markets. However, because we’ve had such a great rally this year, we might have more muted returns for the rest of the year. And September is usually the worst month for markets. Some economic data and earnings still have to wash through the system, so I think September will be a telling month. Value stocks that have been lagging could also pick up, while growth companies might see more tempered growth. So, we expect to see some sector rotation as well.
What are your thoughts on a potential near-term recession?
Many economists, particularly in the U.S., still think we could have a recession next year. It’s worth noting that many of those views have changed significantly from six to eight months ago when many people saw a high chance of a recession. Now, they’re calling for more of a soft landing. While parts of the economy have weakened, the labour market is still hot, and corporate earnings have been pretty strong overall. The market has been resilient. That said, it wouldn’t surprise me if we dip into a recession, maybe early next year.
What equities have you been buying?
We’ve been buying Fidelity Canadian Value Index ETF FCCV-T, which includes undervalued large-cap Canadian companies. We like this exchange-traded fund (ETF) because it’s not constrained by sector weights and rebalances every six months, which provides enough opportunity to allocate to undervalued companies without being overly active. It’s currently overweight the energy and mining sectors, which we believe will continue to be the top-performing Canadian sectors over the next couple of years.
We’ve also bought technology names, including individual stocks like Apple Inc. AAPL-Q, Microsoft Corp. MSFT-Q and Google parent Alphabet Inc. GOOG-Q and two ETFs – Invesco QQQ ETF QQQ-F-T and iShares NASDAQ 100 Index ETF (CAD-Hedged) XQQ-T. The Canadian-hedged ETF is a way to reduce some of the attrition from the Canadian dollar strengthening against the U.S.
We’ve been bullish on the tech sector this year after a terrible year in 2022. The economy is on the cusp of an innovation wave, and there’s excitement about artificial intelligence and the increasing adoption of cloud computing. Cooling inflation has also generated optimism that the U.S. Federal Reserve’s interest rate policy is approaching an end, which will be positive for growth companies.
What have you been selling?
We haven’t been selling or trimming too much this year. At the end of last year, we sold some broader market positions as a tactical move for tax planning purposes. It was an opportunity to crystallize some capital losses, which benefited clients; they could carry it back three years or forward indefinitely. So much of what we sold was more about rotating and taking advantage of the dip in the market. We also put some of that money into cash to be able to buy equities this year.
What’s your advice for new investors?
Find companies you understand. That could be different depending on what generation you’re in. For instance, younger people might understand technology better than more mature generations. Also, don’t let emotions drive your investment decisions. Unfortunately, for new investors, that could be the difference between a successful outcome and a really poor one where they’ll be turned off investing for a long time. Also, be careful of speculative-type growth companies. Focus on companies with more sustainable businesses.
This interview has been edited and condensed.