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Most investors are happy to see 2022 in their rearview mirrors. It was a rare year in which most major equity indexes lost ground while fixed-income returns were also negative. This year, though, looks to be off to a more encouraging start.
So, what does that mean for investors who are considering how to deploy their money – in particular – for registered retirement savings plans (RRSPs)?
Globe Advisor spoke with three portfolio managers to get their top picks for client portfolios.
For Mary Hagerman, senior portfolio manager and investment advisor with The Mary Hagerman Group at Raymond James Ltd. in Montreal, “Successful investing in 2023 will depend as much on what you don’t have as what you do have.”
Her general theme this year is: “Investors should continue to be cautious this year while reallocating to equities and diversifying geographically.”
Ms. Hagerman feels value should continue to outperform growth – and as part of that perspective, she advises investors to add a “value tilt” to their equity holdings with iShares MSCI USA Value Factor Index ETF XVLU-T. The exchange-traded fund’s (ETF) top holdings include AT&T Inc. T-N, Intel Corp. INTC-Q and Pfizer Inc. PFE-N
Ms. Hagerman says she likes the fact the ETF is designed to keep sector weights similar to the broad market, thereby avoiding large over or underweights and achieving diversified sector exposure.
‘Pays’ to look outside North America
Ms. Hagerman’s second pick is another ETF – BMO MSCI EAFE Hedged to CAD Index ETF ZDM-T.
“If the first few weeks of 2023 are any indication, it pays to be looking outside North America to add to portfolio returns,” she says.
Ms. Hagerman points to this fund for core exposure to Europe, Australasia and the far East; she also likes that it’s hedged back to the Canadian dollar, which has been beneficial over the past year or two.
She also notes that valuations in this region are cheap, international stocks provide diversification away from technology, which tends to be a big weight in the U.S., and these regions are the largest trading partners of China.
“As China reopens, it may benefit stocks in Asia and Europe more than U.S. listings,” she says.
However, some advisors say Canadian investors should stick closer to home with their RRSP choices this year.
Andrew Pyle, senior portfolio manager and senior investment advisor with The Pyle Group at CIBC Wood Gundy in Peterborough Ont., is highlighting BCE Inc. BCE-T as one of his top picks.
“It’s a staple for RRSPs and with consistent dividend growth and a yield of more than 6 per cent, it checks off the income box,” he says.
Mr. Pyle notes that it’s relatively inexpensive, with a lower price-to-earnings ratio than its rival Telus Corp. T-T. He also says that in a moderate recession scenario, the stock may fare better as cyclical drivers fade.
His second pick is OpenText Corp. OTEX-T. The Waterloo, Ont. company develops and sells enterprise information management software.
Mr. Pyle says margin compression across several industries is going to move the focus back to cost-cutting and improved efficiencies, which should lead to continued growth in demand for cloud services.
He notes the stock is currently at a good valuation and has a 3 per cent dividend yield that has been growing.
Long-term growth opportunities
A third approach for RRSPs this year is to look for leading companies well-positioned to take advantage of emerging trends. Brian Madden, chief investment officer at First Avenue Investment Counsel in Toronto, has two picks that fit that bill.
The first is Alibaba Group Holding Ltd. BABA-N – the leading e-commerce and cloud-computing provider in China. Mr. Madden says China’s middle class is growing rapidly and spending more and more on discretionary goods.
At the same time, Chinese spending on cloud computing lags the rest of the world and is expected to grow at 30 per cent a year over the medium term. Since late 2020, the stock has been punished by COVID-19 lockdowns, stringent internet regulation in China, and concerns about the American depository receipt shares being delisted forcibly by U.S. regulators from that country’s stock exchanges.
“With essentially all of these short to medium-term storm clouds having parted over the past few months, the long-term growth opportunity for this company is back in sharp focus,” Mr. Madden says. He notes the shares have begun to recover but remain 60 per cent below their 2020 peak, offering an attractive valuation.
Mr. Madden’s second pick is Cameco Corp. CCO-T – the only large-cap pure-play uranium producer listed on major stock exchanges. With the Fukushima earthquake and nuclear disaster now 12 years behind us and Russia’s invasion of Ukraine last year creating an acute sense of energy insecurity in Europe, nuclear energy is experiencing a renaissance of sorts.
Cameco owns two producing uranium mines in Saskatchewan – McArthur River, the world’s largest primary uranium mine with 275 million pounds of reserves and Cigar Lake, the world’s second-largest high-grade uranium mine. Mr. Madden notes the combination of significantly higher production volumes, sold at higher prices has the company poised to triple earnings per share this year versus their 2022 profits.
He’s also positive on Cameco’s acquisition of Westinghouse Electric Corp., the dominant global player in design, build and maintenance service for nuclear reactors.
“We expect this acquisition will be roughly 25 per cent accretive to Cameco’s earnings per share, and will further solidify the company as a clean energy investment, as opposed to merely a ‘Canadian mining company,’” Mr. Madden says.
He expects these factors to attract broader environmental, social and governance-centric investors for Cameco, and lead to an upward re-rating in the shares over time.
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