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One portfolio manager is upbeat on Canadian names such as convenience store operator Alimentation Couche-Tard.Fred Lum/the Globe and Mail

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For many investors, 2022 was a painful year as stock markets tumbled amid surging inflation, rising interest rates, recession fears and Russia’s surprise invasion of Ukraine.

Stock market volatility was elevated and many U.S. technology stocks – once market darlings – took a beating. The S&P 500 Index plunged 19 per cent, while the S&P/TSX Composite Index fell 9 per cent.

With the year now behind us, we asked three experts included in The Globe and Mail and SHOOK Research’s rankings of Canada’s Top Wealth Advisors about how they’re positioning client portfolios for 2023 and what sectors and investments they expect to outperform.

Charlie Spiring, chairman and founder of Wellington-Altus Private Wealth Inc. and senior wealth advisor at Spiring Wealth Management, Winnipeg

North American markets should rally this year, but it’s wise to stick with high-quality stocks, Mr. Spiring says. “I’m moderately bullish. … I think we’re going to get low double-digit returns for both markets.”

The market outlook appears more favourable now that inflation appears to have peaked and U.S. interest rates are close to peaking, he says, adding he also takes his cue from the bond market.

“We have a chance of interest rates being lowered at the end of the year, or certainly at the start of 2024.”

He’s taking what he calls a “top-grading” approach this coming year to invest in the “best of the best” names in an industry sector in case there are “some surprises and the Federal Reserve Board takes longer to pivot, or inflation is more stubborn.”

Energy stocks still look cheap and the sector is “one of my top three” for this year, he says. “I really don’t see an end to the Ukraine war, which is keeping pressure on commodity prices.”

Canadian Natural Resources Ltd. CNQ-T is his top energy pick. “It’s the most efficient and well-run, big oil company in Canada,” Mr. Spiring says.

Canadian financials are also attractive, he says, because the banking regulator has just raised the Tier 1 capital requirement for banks so they can absorb large loan losses. His top pick is National Bank of Canada NA-T followed by Royal Bank of Canada RY-T.

He also favours the U.S. pharmaceutical sector for diversification and attractive valuations. He likes Pfizer Inc. PFE-N, partly because it’s active in producing COVID-19 vaccines.

Railroad companies are also on his radar because they’re steady performers. He favours Canadian National Railway Co. CNR-T because “it has had a management change and is laser-focused.”

He’s avoiding small-cap stocks right now except for Exchange Income Corp. EIF-T, which focuses on aviation services, aerospace, and manufacturing.

“It’s a really profitable company with a nice dividend that grows every year, and [the stock] has a yield of almost 5 per cent,” he says.

Mr. Spiring also sees U.S. courier giant FedEx Corp. FDX-N as a turnaround play.

“It had a terrible 2022, but has been revamping for the past six months,” he says. “It’s a good business, and they’ll get it right.”

Clark Linton, senior wealth advisor and portfolio manager, Plena Wealth Advisors, Raymond James Ltd., Vancouver

North America stock markets are poised to recover this year amid signs that inflation and interest rates have peaked, Mr. Linton says.

“I’m cautiously optimistic. I would expect a positive year in both markets,” he says.

“Our view is that inflation probably hit its high point in the summer when commodity prices started softening.”

Over the past three or four months, his team has positioned portfolios for a recovery, and an environment in which the tightening interest rate cycle is coming to an end.

He says the rebound will likely be more U-shaped versus the V-shaped recoveries following the 2020 and 2008 market collapses that got help from the U.S. central bank easing monetary policy.

Mr. Linton is finding better buying opportunities in the U.S. market, which has fallen more than the domestic market. Many beaten-up U.S. growth names in the consumer discretionary and technology sectors would benefit from inflation and interest rates peaking, he adds.

“I’m not making a call on the U.S. market doing well,” he says. “We’re not big market timers. But from a valuation perspective, the companies that we see benefiting over the next 12 to 18 months are more of the U.S. growth-oriented companies.”

Some of them have corrected 40, 50 or 60 per cent – albeit off very elevated levels, he says. “Our focus is always on companies that have an economic moat in that they have a competitive advantage.”

He likes consumer discretionary names, such as Nike Inc. NKE-N, Starbucks Corp. SBUX-Q and the Home Depot Inc. HD-N, as well as tech stocks, such as Inc. AMZN-Q and Alphabet Inc. GOOGL-Q.

There are also opportunities in utility stocks, which are very interest rate-sensitive, he says. “A lot of them have corrected quite significantly as a result of rising interest rates.”

He also likes medium-term, high-quality corporate bonds because their yields will at least generate a return for a balanced portfolio should stock market returns turn out to be modest in the next couple of years.

However, he says caution is warranted for commodity stocks that have been strong performers and may even stay robust for a while.

“One of the primary drivers of commodities doing well is inflation, and benefiting from a lack of supply,” Mr. Linton says. “But we think that a lot of the tailwinds for these companies may become headwinds.”

Ross Ferrier, portfolio manager and branch manager, Commerce Valley Financial Group, CIBC Wood Gundy, Thornhill, Ont.

Canadian and U.S. stock markets should start to rebound this year as the rapid rise in interest rates by central banks to curb inflation comes to an end, Mr. Ferrier says.

“You’re going to see a general pause in [interest] rates over the course of the year,” he says. “Stock markets will absorb that and will probably eke out single-digit returns.”

Although still cautious in terms of his market outlook, he expects high-quality, dividend-paying stocks to perform well this year.

That should bode well for the Canadian market more so than the U.S. market, the latter of which is “more heavily weighted toward technology stocks, which generally don’t pay as rich a dividend,” he says.

The Canadian market will probably outperform the U.S. index slightly, he says. A higher percentage of the domestic market is made up of energy companies that should “do reasonably well” due to growing profitability from high commodity prices, he adds.

Mr. Ferrier likes names such as pipeline operator Enbridge Inc. ENB-T, a strong dividend payer, and natural gas producer Tourmaline Oil Corp. TOU-T, which has been paying a special dividend in addition to regular payouts.

“Canadian banks will probably do much better next year,” he adds.

“Margin expansion will be better for them with the rising interest rates that we have had.”

He likes Royal Bank, Toronto-Dominion Bank TD-T, Canadian Imperial Bank of Commerce CM-T and Bank of Montreal BMO-T as they all have “good U.S. beachheads.”

Rising yields have made fixed-income investments more attractive now, he adds. He likes high-quality corporate bonds and guaranteed investment certificates as a complement to equity holdings.

Mr. Ferrier is also upbeat on names, such as convenience store operator Alimentation Couche-Tard Inc. ATD-T, and Choice Properties Real Estate Investment Trust CHP-UN-T, which mainly owns Canadian retail properties anchored by Loblaws Companies Ltd.

Still, his client portfolios hold about 25 to 30 per cent in cash, which will be invested once there is more guidance that the Fed is pausing on interest rates.

“That would be a prudent time to enter the market in a bolder way,” he says.

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