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illustration of Anish Chopra.Illustration by illustration Joel Kimmel

Anish Chopra isn’t making a recession call right now, but the money manager is holding extra cash for a sharp downturn he believes could come sooner rather than later, given the number of macro events affecting markets.

“We’re in a very challenging market environment; there’s the energy price shock, higher interest rates, food inflation, the war in Ukraine and an uneven economic recovery with COVID-19,” says Mr. Chopra, managing director at Portfolio Management Corp. in Toronto. He oversees more than $500-million in assets.

“It’s the number of different things that the market has to deal with – and the pace of those events – making it difficult.”

His company is currently holding about 12 per cent cash in its growth portfolio, up from 8 per cent last summer, readying for an opportunity to buy good companies that might get hit in a market downturn – whether it’s an official recession or not.

“While there’s a trade-off with cash in an inflationary environment, it cushions an equity market slowdown,” he says. “It also allows us to invest in companies that meet our criteria. It’s offence and defence at the same time.”

His growth portfolio, which also includes 84 per cent equities and 4 per cent fixed income, gained 12 per cent over the past year, as of March 31. The portfolio has had an average compounded annual return of 9 per cent over the past decade.

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The Globe and Mail recently spoke to Mr. Chopra about what he’s been buying and selling, and the advice he gives friends looking for stock tips:

Describe your investing style

We want to buy the highest-quality companies we can invest in at reasonable prices. Quality means companies with a solid business model, good balance sheets, high returns on capital and great management teams. We want them to be able to survive difficult downturns like the one we had in 2020. Valuations are also important. It’s a lot to ask for, so we have to be patient when investing.

What’s your take on a pending recession?

I would say there’s a higher probability of a recession simply because we’ve got a lot of global events coming together quite quickly. Given the uncertain environment, there’s a chance that central banks could overdo it with interest rate hikes and tip the economy into a recession. We’re not making a macro call on whether there’ll be a recession over the next six months. Instead, we’re just making sure we’re prepared for various economic scenarios.

What have you been buying?

Our focus is on non-cyclical areas of the market, such as telecom, utilities and health care, and a move away from consumer discretionary stocks given rising inflation and other factors. For instance, we have been adding to our position in Johnson & Johnson JNJ-N. It’s a diversified health care company that also has a COVID-19 vaccine. It’s a stock that we’re happy to hold in a recessionary environment and an inflationary environment. We also continue to invest in telecom company BCE BCE-T and utilities company Emera EMA-T. We’ve also invested in precious metals streaming company Franco-Nevada FNV-T as an inflation hedge. We like it because – unlike gold miners that face rising costs – Franco-Nevada has a royalty on sales coming out of those companies’ mines. Also, gold rises with inflation.

What have you been selling?

A company we’ve sold is Magna International MG-T, which we had owned for about 2.5 years. It falls into consumer discretionary stocks we’re moving away from. Magna and the other automobile companies are also seeing inflationary pressures in their input costs. Another company we’ve sold is Amadeus IT Group, the information technology backbone for the travel industry in Europe. We bought it as a recovery play after COVID-19 hit. Given the war in Europe, we believe the recovery in travel in that region will take longer than anticipated, so we sold it.

What investing advice do you give family and friends?

People always want “the one” – that investment idea that will go up a lot, quickly. But given our longer time horizon as investors, we have a different view; things take time. In the short term, things can go wrong. The macro-environment can change quite dramatically, as we’ve seen recently. So, the investing advice that I give is to save, diversify and asset-allocate: You need to save a portion of your income because you want that to grow over time. You want to diversify your holdings and allocate a portion of them across classes, like equities or fixed income and cash. Having a financial plan builds confidence in your decision-making and takes emotion out of the investment process.

This interview has been edited and condensed.

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