There are two types of bear markets, notes money manager Vishal Patel – those that come with a recession and those that bypass it. While he’s not placing bets on which one we’re in currently, Mr. Patel believes the market downturn is a good time for longer-term investors to make money.
“I wouldn’t shy away from the market just because we’re in a bear market,” says Mr. Patel, vice-president and portfolio manager at Scotiabank’s 1832 Asset Management. He oversees more than $6-billion in assets across different North American strategies that include Canadian small-caps as well as separate U.S. and Canadian equity funds.
Mr. Patel believes the next 12 months will bring “tremendous opportunity” to buy stocks at cheaper valuations. His focus has been on trimming his fund’s technology exposure and adding more health care.
His Dynamic U.S. Balanced Class fund is down 6.6 per cent over the past year, as of June 27. Its annualized return is 8.6 per cent over the past three years and about 9.7 per cent over the past five and 10 years. All performance is for the Series F class and based on total returns after fees of 1.09 per cent, according to Morningstar.
Some of the fund’s top holdings as of May 31 include technology giants Microsoft Corp. MSFT-Q and Apple Inc. AAPL-Q, as well as paint manufacturer Sherwin-Williams Co. SHW-N, medical-device company Edwards Lifesciences Corp. EW-N, and insurance company Progressive Corp PGR-N.
The Globe recently spoke to Mr. Patel about what he’s been buying and selling and his best stock pick to date:
Describe your investing style:
We look to own a diversified portfolio of high-quality, profitable businesses with strong balance sheets that will be around three, five, 10 years from now. We also like companies with strong brands with pricing power that are dominant in their field. It’s these types of companies that I think will survive any recession. For them, a recession can also be viewed as an opportunity to grow through acquisitions. They can buy out weaker competitors when asset values fall and gain market share.
Also, we don’t think about equities as a piece of paper. We look at it from the perspective of owning a partial interest in an operating business. That’s why the turnover in our funds is a lot less than many others out there. We prefer to buy and hold great businesses over time.
What have you been buying or adding in recent months?
We’ve been reducing our exposure to the technology sector and increasing our exposure to health care. We like health care because it should do well in both recessionary and non-recessionary times, considering the aging population and that people are living longer. We specifically like the medical-devices area.
One company we’ve been adding to is Edward Lifesciences, which makes a life-saving heart valve delivered through the blood vessels as an alternative to replacement by open-heart surgery in some patients. More surgeries are expected to be done this way.
The company also has a great management team. The stock has been down lately, so we’re taking advantage of that to buy more. We are also looking to buy more of these innovative, value-added, life-saving opportunities in health care because that’s where you’ll find pricing power.
What have you been selling/trimming in recent months?
We recently sold out of social media giant Facebook [now known as Meta Platforms Inc.], which was a top 10 holding. Apple’s latest privacy changes have negatively impacted Facebook and other social media businesses. Also, TikTok is taking away some of Facebook’s market share in video. It’s a stock we may revisit in future, depending on what it does in the metaverse.
What’s a stock you wish you bought or didn’t sell, and why?
LVMH, also known as Moët Hennessy Louis Vuitton. It has more than 70 amazing brands that go beyond those in the name, such as Tiffany, Tag Heuer and Sephora, to name a few. The company meets all of our investment criteria. The only reason we don’t own it is because I focus on North American mandates, and it’s a French stock. If I ran a global fund, I would definitely consider this name.
What investing advice do you give family members when they ask?
I often get asked for advice from family and what I tend to tell them and others is to get a financial plan and stick to it. I also recommend they look at investing in companies outside of Canada, in the U.S. market in particular, which has several great companies.
What’s the best stock pick you have made in your career to date?
This is an easy one. It’s the largest holding in the fund: Microsoft. It’s one of the biggest companies in the world, with a Triple-A balance sheet. It’s a dominant franchise and has great leadership. Since Satya Nadella came on as CEO [in 2014] the stock has done tremendously well. You could make a case that he rebooted Microsoft. We think it will continue to do well.
This interview has been edited and condensed.
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