67 WALL STREET, New York - July 23, 2012 - The Wall Street Transcript has just published its Investing in Canada Report offering a timely review to serious investors. This special feature contains exclusive industry commentary with expert Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Investing in Canada - Canadian Dollar Dividends - Long Term North American Macroeconomic Trends
Companies include: Pfizer Inc. (PFE), The Bank Of Nova Scotia (BNS), Bank of Montreal (BMO), Canadian Imperial Bank of Comm (CM), Royal Bank of Canada (RY), Sun Life Financial Inc. (SLF), Manulife Financial Corporation (MFC), Bank of America Corporation (BAC), Citigroup, Inc. (C), NYSE Euronext, Inc. (NYX), Goldcorp Inc. (GG), Barrick Gold Corporation (ABX), Walgreen Co. (WAG), CSX Corp. (CSX), Microsoft Corporation (MSFT), Research In Motion Ltd. (RIMM)
In the following excerpt from the current Investing in Canada Report, Thomas S. Caldwell, Chairman of Caldwell Securities and Caldwell Investment Management, a portfolio and stock trading expert with 50 years of securities markets experience, discusses his outlook for the market and his top Canadian equity picks for investors.
TWST: You addressed what you look for in terms of criteria for selecting individual securities. Would you talk more about how you approach portfolio construction?
Mr. Caldwell: The most important decision in managing money is your asset mix. That’s more important than the individual securities you own. And by asset mix, I mean, what is your fixed income or your bond component versus your equity component? That’s the primary decision. The problem is that in the bond side — that is, the fixed income side, and I’ll use that generically — we’re looking at historically very, very low interest rates. And there are lots of reasons for this, whether it be QE2, 3, 5 or 10, whether it be the fallacy that inflation is low.
But we compare that to, say, the equity side — and let me take the Canadian banks as an example, but there are also great companies in America that are providing decent dividend yield. I can get dividend yields on both sides of the border that are multiples of what I can get in fixed income. Corporations in America are fairly flush with cash, business is progressing. They’re relatively efficient, so it seems to me that I would want to lean to the equity side at the present time. So I would underweigh the fixed income and overweigh on the equity side — the reason being the horrendous debts that have accumulated around the world at the governmental level and in some of the banking sector in Europe. Governments are like your kids: they never pay you back. They’re never going to pay these loans off; they’re going to inflate them out of existence. If you noticed, central banks are now talking about 2% no longer being a target, but maybe something between 2% and 4%.
Well, at 4% inflation in 10 years, those debts have gone down by 40%. And remember that inflation numbers are always skewed to the downside. We’re not living in a 2% inflation world. Do you know anything that’s gone up by only 2% in the last year? I sure don’t. So to protect myself from inflation, I also want to own assets. This also speaks to the equity side. So I can get greater dividends, I can get the prospect of dividend increases down the road, I’m taxed at an advantageous basis, I will participate in growth, and I will participate in inflation to some degree. All of that speaks to skewing to the equity side.
On the equity side, when I’m confused, I will go for yield. Whenever I can get a decent dividend yield, I will do that. I’m speaking to some of our conservative portfolios — we have very aggressive modeling that will target growth companies, and we’re in and out, and we do those very aggressively. I’m talking about primarily our private capital accounts. Again, they will have a little bit of a Canadian skew, although we do own companies in America like Pfizer (PFE), etc. We’ll start with a dividend yield. If we’re going to get some yield, I want to get some growth as well. I’d like to have everything. So that’s where we look: what are the growth prospects, what are the chances of dividend increases, that sort of thing.
TWST: Specifically thinking about investing in Canada, are there particular sectors that you are currently over- or under-weight or that you feel are most or least promising?
Mr. Caldwell: Speaking to the portfolio that I’m responsible for, which is not necessarily across the firm, I’m probably overweight financial services. And when I speak to financial services, I’m really referring to the Canadian banks to some degree, the big ones like Scotia (BNS), Bank of Montreal (BMO), Commerce (CM), Royal (RY).
I’m getting yields between 4.5% and 5%. Banks in Canada are more or less a protected species. Our managements are seminormal in that they did not participate in the subprime fiasco. And by the way, in defense of America’s bank management, there was tremendous government pressure on U.S. banks to make those subprime loans. That’s something that’s always neglected from the Michael Moore documentaries, that everybody should own their own house. In fact, I know one group of directors at a bank in California who were threatened with personal tax audits if they didn’t get their subprime loans up. So there’s a little bit of government involvement there. But the banks here, the dividend yields are fairly high.
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