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Inside the Market What Canadian portfolio managers are buying, selling and thinking amid the latest bout of market volatility

Worries about slowing global growth, trade wars and that upside-down yield curve have sent stocks tumbling this month, including the Toronto stock market’s worst plunge this year on Wednesday. Is it a buying opportunity, or should investors sell to avoid a further drop in their portfolios? Staying put could also be the best strategy. The Globe and Mail spoke with a handful of Canadian portfolio managers about their take on the recent market volatility and how they’re reacting.

Bruce Campbell, president and portfolio manager at StoneCastle Investment Management, has been trimming a few stocks in the sell-off that have done well. For instance, he built up a position in the ProShares VIX Short-Term Futures ETF (ticker: VIXY) and precious metals names in May and June. “We have been trimming both of those areas back this week as the move up … has been strong,” he says. “The sentiment is being pushed to extremes in both areas and so we made the decision to take partial profits."

While he hasn’t been buying in this latest downturn yet, Mr. Campbell is watching two sectors in particular: health care, including cannabis, and energy. “Both sectors have been beaten up in the last several months and are getting pushed to extremes,” he says. “Some of the early technical tools that we use are showing that both these sectors are approaching a bottom. Once the overall markets stabilize we could see these sectors accelerate to the upside once investors return to the markets.”

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Craig Jerusalim, senior portfolio manager at CIBC Asset Management, is sticking with his focus on “high-quality, growing businesses with defensible competitive positions.” But he also sees the recent market drop as a buying opportunity.

“Whenever prices dislocate from fundamentals, it absolutely creates opportunities to high-grade portfolios, and reposition holdings toward high-conviction opportunities," he says. "These changes are especially opportunistic when the market sentiment and volatility is being driven by headlines, tweets and rule-of-thumb indicators like the yield curve, without incorporating all of the fundamentals driving businesses and the economy.”

Mr. Jerusalim has been selling smaller oil and gas producers in favour of renewable producers. For instance, he expects companies such as Brookfield Renewables Partners LP to deliver predictable revenue and dividend growth regardless of how commodity prices react. As for energy companies, he likes Suncor Energy Inc. He believes Suncor will be able to generate excess free cash flow even if oil falls below US$50 a barrel, without increasing its leverage, “which cannot be said for many other oil and gas producers.”

He also bought more Agnico Eagle Mines Ltd., which he describes as “one of the highest-quality gold producers” in the sector. He likes that Agnico operates in safe jurisdictions, is expanding gold production, has a strong management team and, as the price of gold rises, “offers a very attractive relative risk/reward payoff in this uncertain economic environment.”

Kathrin Forrest, portfolio manager at Sun Life Global Investments, says the recent market sell-off doesn’t change her “generally cautious outlook” for the market. She remains underweight equities and lower-quality, higher-yielding fixed income. “We see recent market movements as a reflection of deteriorating economic fundamentals rather than a compelling buying opportunity for equities, or risk assets in general,” she says.

Ms. Forrest likes large-cap U.S. stocks right now because of their “better quality and stronger earnings momentum." However, she has started to trim some positions, "given valuation(s) and heavy investor positioning.” She’s also looking at adding back emerging-market debt when the right entry point comes along. “We may see some support in this area given the lack of yield across large segments of the fixed-income market globally,” she says.

Christine Poole, CEO and managing director at GlobeInvest Capital Management, says economic data signals global growth is slowing but she doesn’t expect it to go negative. And while there is escalating trade uncertainty, Ms. Poole says the U.S. consumer is still actively spending.

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The temporary inversion of the yield curve between the 10-year and two-year Treasury Bond “is concerning but does not necessarily indicate a recession is imminent," she says.

Bottom line: Ms. Poole isn’t changing her strategy amid the market turmoil. “We invest in financially sound companies who either offer attractive income through dividends or are well-positioned in attractive growth sectors. The price we pay for those companies is very important. So, we will take advantage of market volatility/pullbacks to opportunistically buy stocks at reasonable prices,” she says, adding "we will be patient to buy at what we consider attractive entry points.”

For instance, she recently bought Royal Bank of Canada. While its earnings will likely come in lower than last year, Ms. Poole still expects growth to be positive this year and next, at around 5 per cent each year. “While [Royal Bank] is the largest bank in Canada, almost a quarter of its revenues come from the U.S., which is performing well.”

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