Why this portfolio manager has hiked his cash position amid stubbornly high inflation

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Money manager Anish Chopra doesn’t love having one-fifth of his growth portfolio in cash right now, but believes it’s the best option while waiting to see what happens with inflation and the broader health of the economy.

“We’re not looking to keep the cash reserves for an extended period, but we just haven’t seen that many opportunities in the markets lately,” says Mr. Chopra, managing director and portfolio manager at Portfolio Management Corp. in Toronto, who oversees more than $500-million in assets.

While inflation has eased in Canada and the U.S., Mr. Chopra says it still remains “a significant issue” for the economy. Unlike some market watchers, Mr. Chopra doesn’t expect interest rates to fall in the coming months, and he wouldn’t be surprised if they inched higher in the near term. Hence, the higher cash holdings.

“We just haven’t seen anything that makes us make the trade-off between earning 4 and 5 per cent in Treasury bills or short-duration cash instruments versus long equities,” he says.

The 20-per-cent cash weighting is up from 12 per cent last year. Equities currently make up 76 per cent of his growth portfolio, down from 84 per cent a year ago, while fixed income remains at 4 per cent year-over-year.

The asset mix and selection of 35 to 40 stocks have helped Mr. Chopra keep his clients out of the red during the recent market volatility. His growth portfolio returned 4.7 per cent over the 12 months ended April 30, and has seen a compounded average annual return of 10.2 per cent over the past three years. His performance is based on total returns, net of fees.

The Globe and Mail spoke with Mr. Chopra recently about what he’s been buying and selling and a Japanese stock he wished he bought more of.

Describe your investing style.

We look to buy the highest-quality companies at reasonable prices. We view quality as companies with solid business models, strong balance sheets, high returns on capital and experienced management teams with good track records. We also think, ‘Will the business be able to survive difficult economic times?’ So, there’s an assessment of business quality, but we want to buy those companies at a reasonable valuation, so patience is important.

What have you been buying?

One stock we added to late last year is software consolidator Open Text Corp. OTEX-T. The stock dropped after its debt-heavy purchase of Micro Focus International PLC. We felt confident buying the stock when it dipped because Open Text is an experienced acquirer. The stock has recovered nicely since we added more.

Another stock we bought is U.K.-based Smith & Nephew PLC, which trades on the London Stock Exchange. The company specializes in making artificial hips and knees. We bought the stock during the early days of the pandemic when it dropped as a result of delays in elective surgeries. It’s a longer-term hold with a recovery period that will take some time.

Regarding fixed income, we recently bought the Saputo Inc. bond maturing in June, 2026, because we were able to get a 5-per-cent yield over the next three years.

What have you been selling?

We haven’t sold anything of significance this year. We’re satisfied with the quality of the companies we currently hold and their valuations.

Name a stock you wished you had bought or didn’t sell.

Astellas Pharma Inc. is a Japanese multinational pharmaceutical company that we own on the Tokyo Stock Exchange. Late last year, the stock dropped after the U.S. Food and Drug Administration (FDA) said it needed more time to review its menopause drug. We wished we had bought more of the stock when it dropped because the company has a strong portfolio of pharmaceuticals. Also, the company announced the FDA approval in May, and the stock has risen a lot since.

Also, Amazon.com Inc. AMZN-Q is a stock that we wished we bought decades ago. It was one of the few survivors coming out of the dot-com bust, and we all know the Amazon story today. That said, it was a much different company back then. And what’s driving today’s profitability, which includes largely its cloud services division, is much different than it was back then.

What advice do you have for new investors?

Don’t focus on one stock that you think will work now. It’s important to diversify across asset classes and to think long-term. Also, investing will test your emotions. Know yourself. How comfortable are you watching markets go up and down? That should also shape your asset mix and what securities you own in the short and long term.

This interview has been edited and condensed.

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