Jason Del Vicario shudders when he hears the phrase, “this time is different” from market forecasters – especially those who don’t believe a recession is on the horizon. “I don’t think it’s different this time,” says Mr. Del Vicario, a Vancouver-based portfolio manager and investment adviser at HollisWealth, a division of Industrial Alliance Securities Inc.
Mr. Del Vicario, who oversees about $118-million in assets, is expecting a recession to hit as early as this year and is positioning his portfolio in preparation, moving further into cash and government bonds.
His balanced fund, which has a 70-per-cent equities limit, returned 5 per cent year-over-year as of March 27, net of fees. The S&P/TSX Composite Index was up 6 per cent year-over-year, over the same time frame. His fund has seen a compound average annualized return of 8.5 per cent since inception in September, 2014.
What concerns are you hearing from investors today?
Investors generally fear what they hear in the media, which lately has been mostly focused on geopolitical and trade tension risks. If you’re asking what I’m concerned about, it’s more around a recession. I’ve been concerned about a recession for about a year now. The yield curve inverting recently is a sign. Typically, a yield curve inversion is followed by a recession. It inverted in 2007 and we had a recession in 2008-09. The same thing happened in 2000 and we had a recession in 2001.
How are you positioning your portfolio today for the potential of a recession?
We are 20-per-cent cash and about 40-per-cent in government bonds and 40-per-cent in equities. With bonds, we’re 30-per-cent government bonds and 10-per-cent corporate. We’re making a call that corporate debt is a risky place to be. Of the 40 per cent in equities, about 12 per cent of that is in precious metals, including iShares Gold Trust ETF [IAU] and the iShares Silver Trust ETF [SLV]. It might be cheeky calling those equities. We have a very diversified approach because I’m not really sure what’s going to happen in the markets in the months to come.
What stock(s) have you been buying lately?
We don’t trade that actively. That said, we bought Starbucks Corp. [SBUX] and Kirkland Lake Gold Ltd. [KL] in the past 12 months or so. We bought Starbucks when it was in the low US$50-range. We sold a bit in October around US$69 and have been holding the position ever since. [The stock is now trading around US$74]. I’m looking for companies that have demonstrated a history of producing a greater than 20-per-cent return on equity over at least three years. Starbucks qualified. It also became cheap.
Kirkland Lake was a stock I bought after thinking about the market being in the later stages of the economic cycle, and what type of securities we wanted to buy. We wanted to own some gold. We got lucky on that one. They have a gold mine in Australia that’s literally and figuratively a gold mine. They keep extracting more gold, their costs are going down and their reserves are going up. They were also bid up at the end of last year when markets went down. We bought it in February, 2018, on the Toronto Stock Exchange at around $20. [The stock is now trading around $39.]
What stock(s) have you been selling?
Last fall, we started to cut some stocks that were looking expensive. One was Shopify Inc. on the TSX [SHOP] and another was Domino’s Pizza Inc. on the NYSE [DPZ]. We bought Shopify around $65 in early 2017 and sold about half in October and the rest of it in February, at around $170. [The stock is now trading around $274.] We bought Domino’s in September around US$300, because we see it as a very innovative company, but sold in October, at a loss, around US$260, after a bad earnings report.
What's the one stock you wish you bought, or wish you didn’t sell so soon?
In retrospect, we shouldn’t have sold Shopify given the recent run-up. Around the office, everyone knows not to mention Shopify to me. It seems to go up every single day, against the odds, I think. It’s just there to annoy me! I’m sure as investors we all have this experience from time to time. I will sound like a sore loser here, but I think Shopify benefits from the scarcity of other tech options in Canada. As a Canadian, I’m super proud that they’re killing it. We’d love to own it again, but right now it’s too expensive.
What’s your best advice for Canadians hoping to become high-net-worth investors?
This is going to sound corny but it’s true: Spend less than you make. Nobody ever got poor saving a little bit every week, month or year. We have clients that make $40,000 a year and some who earn $400,000. The person who earns more is no better off if they don’t save a penny. We have clients in the higher salary range who struggle to save money. Once you build a nest egg, either go the cheap passive-investment route or find a portfolio manager that has a history of beating the market with a process that is easily explainable. In both scenarios: Continue to save.
This interview has been edited and condensed.
Special to The Globe and Mail