The economic fallout of Russia’s attack on Ukraine, alongside rising inflation and anticipated interest rate hikes, is creating more stock market uncertainty – with no end in sight. For money manager Laura Lau, it’s a good time to go “back to basics,” which she says includes a focus on reliable dividend-paying companies in Canada and the United States.
“In this kind of environment, you want some certainty with companies that are confident that their earnings are there and that can pay out more in dividends. That’s the right style at this point in the cycle,” says Ms. Lau, chief investment officer with Brompton Group in Toronto, who oversees about $2.3-billion of the firm’s $2.7-billion in assets under management.
“We’re going back to basics – to companies that help people sleep at night,” adds Ms. Lau, whose broad-based Brompton Global Dividend Growth ETF, one of the many funds she oversees, was up by about 23 per cent in 2021.
The Globe and Mail recently spoke with Ms. Lau about what she’s been buying and selling and why she doesn’t recommend stocks to friends and family:
What have you been buying lately?
Before the runup in oil prices, we were buying Imperial Oil IMO-T. We’ve traded in and out of the stock over the years and bought it back in early February. The fundamentals were improving: People are driving and flying more and supply is limited. We thought it made sense to add some oil exposure. It has lots of cash and has been doing stock buybacks. I would not add more right now, given the surge in oil prices in the past couple of weeks. That could prove to be wrong, but right now it’s hard to tell because oil has gone up so much.
We also bought Archer-Daniels-Midland in early February. It sources, transports and processes agricultural goods. We felt that the market was getting tighter. It’s a good, stable name that has a reasonable dividend and has been increasing it over time.
Fortis is another stock we started buying in one fund in mid-December and another fund in mid-February. It’s a stable utility company. Last year, utilities underperformed. Part of the reason was that investors were looking for growth names. We wanted something with a little more stability with the market selling off – something more defensive. It has a track record of increasing dividends for more than 40 years.
What have you been selling or trimming?
We sold Goldman Sachs GS-N in early February. It was seeing a lot of cost pressure with wages. Goldman Sachs has a culture of paying people well, which is good and bad for investors. We also saw its number of deals going down over time, which is one of the major ways it makes money. We also sold JPMorgan, another U.S. financial name. We sold those U.S. financials and bought Canadian banks instead, in particular Toronto-Dominion Bank and Bank of Nova Scotia. We expect the Canadian banks to outperform the U.S. in the near term, with fewer cost pressures.
We also sold out of Dollar General DG-N, the American chain of variety stores. It was more of a sector call. Discretionary stocks have done very well during the pandemic and, for us, it made sense to us to take some money off the table, especially given rising inflation.
Name a stock you wish you bought sooner.
I wish I bought Costco COST-Q sooner. We bought in our low-volatility fund in November last year, but I wish I bought it in our bigger generalist funds. We didn’t because it looked expensive. Costco is always expensive, for good reason. I regret it because sometimes when something is expensive it gets more expensive, which this stock has.
What’s the best stock you’ve ever bought?
The best stock we’ve ever bought is Netherlands-based semiconductor company ASML ASML-Q. It has a monopoly in its market, which is providing advanced semiconductor solutions. We’ve owned it for more than five years and have benefited from the recent supply crunch. [The stock is up more than 350 per cent over the past five years].
What advice do you give friends and family when it comes to investing?
Start investing early so you can have the power of time and compounding on your side. And stay invested: Don’t let headlines get to you.
What’s the best (or worst) stock market tip you’ve given to a family member?
I don’t give stock tips to family members. If the stock goes up, you’re a genius, but if it goes down, they hate you. There’s no upside.
This interview has been edited and condensed.
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