While stock markets have pulled back from bear territory in recent days, portfolio manager Kash Pashootan warns that investors aren’t out of the woods yet.
“We believe that volatility has a high probability of continuing this year and into next year,” says the founder and chief executive officer of First Avenue Investment Counsel, which has offices in Ottawa and Toronto. Mr. Pashootan oversees $4.1-billion in assets between his firm and its sister real estate company, Emblem Developments Inc.
Still, he says investors shouldn’t be afraid of the ups and downs to come.
“Volatility doesn’t necessarily mean constant negative returns. You can have an environment where the markets are quite volatile and then, after a six-month period, it’s higher than it was before.”
And while Mr. Pashootan says he believes a recession is “inevitable” in the coming months, it’s a chance for the economy to correct itself.
“We remind our clients that a recession is not a depression,” he says. “It’s a period of contraction and often a great opportunity to cleanse the froth that exists in industries and consumer spending.”
It’s also a chance to buy beaten-down stocks at cheaper valuations, which his firm is prepared to do as part of its balanced portfolio, which includes 10 per cent income (cash and bonds), 50 per cent equities and 40 per cent alternative investments.
“If the sell-off in equities continues, we may enter a period where stocks look more attractive than our alternatives, which would be the first time experiencing this since prior to the pandemic,” he says, adding he will maintain a “meaningful exposure to alternatives” to reduce volatility.
His equity portfolios, which encompass three mandates – dividend, growth and momentum – are down by 1.6 per cent, 7 per cent and 12.8 per cent, respectively, so far this year while the alternative asset holdings have increased by between 4 per cent and 7 per cent over the same period.
The Globe and Mail recently spoke to Mr. Pashootan about what he’s been buying and selling and his company’s expansion into alternative assets.
Describe your investing style or mandate?
We are investors first and advisers second. We believe that investing shouldn’t be limited to just public markets. Our firm is building itself to be a mini Brookfield Asset Management, which means we are looking beyond just public markets and investing in private companies. We have a real estate development arm and are also looking at other industries with large-scale potential and a high barrier to entry.
We believe the future is alternative investments. Investors are more open-minded today than in the past when they would just put money into RRSPs and buy stocks. Investors are also asking a lot more questions about risk and fees – which is a good thing. It’s also leading to questions about growth, and other ways to pursue growth. When you look at companies like Brookfield based here in Canada or Blackstone in the U.S., they have exposure to equities, but a big part of where their returns come from is through acquiring private businesses.
What have you been buying or adding in recent months?
Brookfield is one company we’ve been buying, as well as modelling ourselves after. It’s a serial shareholder wealth compounder and long-standing leader in the alternative assets space with a clever and diverse approach to funding and accessing capital markets. It’s also an emerging leader in renewable energy – perhaps the most important secular growth opportunity in the world over the next decade or more.
Another is Quebec-based cable and telecom company Quebecor, which has a stable, high-visibility business and some pandemic reopening exposure via higher cellphone roaming fees. It’s also set to benefit from the pending Rogers-Shaw merger, as a possible buyer for Freedom Mobile wireless carrier business that will have to be sold. The company also has a steadily growing dividend. It’s a good ‘boring’ company with a side dish of growth – characteristics that have worked well for our clients over the years.
What have you been selling or trimming in recent months?
We sold Amazon.com at around US$3,000 a week before its epic earnings miss in late April. We sold due to concerns about consumer fatigue and the weakening macroeconomic backdrop. It was part of our rotation out of long-duration growth names.
Another stock we got out of was Maple Leaf Foods after its big earnings miss. We sold half the position in late February at $28 and the rest in early May at $27.50. The company’s plant-based meat unit has been struggling to prove itself and has been bleeding cash at a time when core pork and meat processing margins are pressured by labour supply issues and upstream food price inflation in the agricultural commodities.
What investing advice do you give family members when they ask?
There is no way of getting rich quickly when it comes to investing. Few have done it while many more have lost it all trying. Also, if someone is going to manage your investments, alignment is essential. The people giving you advice should also have their own capital at risk; it means they will think like investors and not just advisers. Finally, someone giving you advice should be able to explain your investments in human language. My father always told me: Mastery of one’s craft is when you can explain the complex in the simplest way.
This interview has been edited and condensed.
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