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The coming year is expected to be another tough one for investors given stubbornly high inflation, the spike in interest rates, geopolitical issues and fears of a recession that some believe may already be here.

Consumer-focused stocks such as retailers and banks could be particularly challenged, especially in Canada, given our rising debt levels, says David LePoidevin, senior portfolio manager and senior investment advisor with the LePoidevin Group at Canaccord Genuity Wealth Management in Vancouver.

“The Canadian consumer is very vulnerable, much more so than [that of the] United States,” says Mr. LePoidevin, the No.1 advisor in The Globe and Mail and SHOOK Research’s second annual Canada’s Top Wealth Advisors ranking.

Globe Advisor spoke with Mr. LePoidevin about his outlook for 2023, including his highest conviction trade.

What’s your investment outlook for next year?

We believe commodities and some industrials, such as auto parts manufacturers and engineering firms, could do well.

Our theme for the next year is to avoid names tied closely to the Canadian consumer and the banking sector. We’ve had virtually no loan losses in the Canadian banking sector over the past 30 years, but I think we’ll start to see some next year, starting with the smaller, riskier lenders.

To us, life insurance companies in Canada look far more attractive than banks. Bonds also remain unattractive in our view. I know we’ve seen a rally in bonds in recent weeks, but I believe we’re into a multi-year bear market for bonds, given the high inflationary environment.

To me, the 60-40 balanced funds are no longer working. Five years from now, it’s highly probable that balanced funds won’t exist.

Could you talk more about your view on commodities?

I don’t believe the U.S. Federal Reserve will hike rates to the point of a severe recession, which means commodity demand should remain relatively strong.

We don’t love energy as much as we did a couple of years ago, but I think everyone should have exposure to energy, copper and gold. These stocks are inexpensive, and I believe we’re in a bull market for commodities.

How should investors navigate geopolitical issues?

You can’t predict geopolitical events like what [Russian president Vladimir] Putin will do or what could happen in the Middle East. However, you can find opportunities in selloffs related to these types of events that may seem overdone.

We believe Europe is attractive right now, including companies like Unilever PLC UL-N, SAP SE SAP-N, BMW AG BMWYY, and Volkswagen AG VWAPY. Europe is undervalued, while the U.S. is slightly overvalued. It’s an opportunity many investors aren’t paying attention to.

What investments do you like right now?

My highest conviction trade is preferred shares in non-bank companies like BCE Inc. BCE-T and Enbridge Inc. ENB-T. The prime rate has gone up dramatically, and some of these pay dividends of around 8 per cent.

These are interest rates we haven’t seen since the early 1990s. It’s exciting. Yes, the Bank of Canada may cut interest rates, but we’re not going back to zero or near-zero per cent interest rates, in my view.

What advice do you have for investors in 2023?

You need to be a stock-picker and a bit of a contrarian. Investors will need to hunker down and buy good businesses.

This interview has been edited and condensed.

- Brenda Bouw, special to The Globe and Mail

Must-reads from Globe Advisor this week

Five key investment themes to consider for 2023

As the year comes to a close, it can’t happen soon enough for most investors. After several years of strong returns, 2022 was a rare year when most major stock indexes fell at the same time bonds also declined. Now, it’s time to look ahead to 2023. Not only are Canadian equities much cheaper than U.S. stocks on a price-to-earnings multiple, but they are also approximately half in book value and about double in dividend yield, says one investment officer. Terry Cain spoke with several money managers, and came up with five investment themes to focus on in the coming year.

How to bring up estate planning with family this holiday season

This holiday season is the first time in years that many Canadian families will gather in person and, for some, it could be a perfect opportunity to discuss important topics like estate planning. Talking about wills, long-term care needs and who gets mom and dad’s valuables when they pass away may not sound like great holiday conversation. Still, advisors say there are ways to make memories and discuss estate and end-of-life planning with family. Parents could begin by providing adult children with basic information. Brenda Bouw speaks with experts on when and how to tackle the subject.

Why withdrawing early from RRSPs to pay down debt can lead to ‘regret’

When clients face a financial crunch, some hastily tap into their registered retirement savings plans (RRSPs) to get by without considering the consequences. Withdrawing from an RRSP before retirement means paying more taxes. Specifically, it means they pay a 10 per cent withholding tax if they withdraw up to $5,000, 20 per cent for withdrawing $5,001 to $15,000, and all the way to 30 per cent for withdrawals of more than $15,000. Plus, any withdrawal is tacked onto annual income, potentially pushing a client into a higher tax bracket come tax time. Deanne Gage looks at why using these registered assets to pay off creditors could be a mistake and what are the other options.

Why investors need to understand redemption freezes before getting into alternatives

A series of redemption freezes across the private real estate sector has raised concerns about the alternative asset class amid soaring borrowing costs and a cooling economy. It also underscores the need for advisors to educate clients on the limits of what they own. Asset manager Blackstone Inc. announced earlier this month it would limit withdrawals from its US$69-billion unlisted Blackstone Real Estate Income Trust after a surge in redemption requests from investors worried about valuations. Brenda Bouw reports on what investors need to consider about gating provisions and liquidity rights.

Also see:

How advisory practices are preparing for a looming recession

How to help couples that clash on money issues because of different cultures

How advisors are finding balance as clients’ service needs grow

Investors size up opportunities in post-conflict Ukraine

Brokers braced for big overhaul of U.S. stock trading rules

What you and your clients need to know

Bank regulator keeps mortgage stress test unchanged despite calls to relax rules

Canada’s bank regulator said it is not changing the mortgage stress test, ignoring calls to relax the rules and offer relief to borrowers after the spike in borrowing costs. The Office of the Superintendent of Financial Institutions said the mortgage stress test for uninsured bank mortgages would continue to require borrowers to qualify at a rate of 5.25 per cent or two percentage points above their actual contract, whichever is higher. With mortgage rates hovering around 5 per cent, borrowers must show they can make their loan payments with an interest rate at 7 per cent. Rachelle Younglai and Stefanie Marotta report on what this means for homebuyers.

Nine TSX stocks with strongly positive analyst sentiment

Since March, the Bank of Canada has increased the country’s interest rates seven times to combat the rapid rise in inflation. In theory, equity markets should have seen a large decline, given there were several rate hikes in a short period of time. However, the S&P/TSX Composite Index has seen only a slight decline on a total return basis, dropping 3.9 per cent since the first rate increase on March 2. The central bank has also hinted the rate increases may be nearing the end. Using StarMine’s Analyst Revisions Model, Erik Foo of Refinitiv looks at sentiment over the past 60 days, which include the two most recent rate increases, to find stocks with high analyst sentiment in a rising rate environment.

Tax changes that affect Santa, and that could apply to you

As much as Denmark, Finland, Iceland, Norway, Russia, Sweden and the U.S. would like to suggest that Santa Claus is a resident of their countries, we all know that he and Mrs. Claus are Canadian citizens and residents. (Santa Claus, North Pole, H0H 0H0, Canada.) So, like all Canadian residents, Santa has to file tax returns in Canada. What’s changed in 2022 that might affect his taxes? Tim Cestnick shares some things that have changed this year like trust reporting rules and new tax credits that Santa and everyone else should pay attention to.

– Globe Advisor Staff

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