Stable High Dividend Yields: Does Investing in Canada Provide Downside Portfolio Protection?

Wall Street Transcript

67 WALL STREET, New York - July 23, 2012 - The Wall Street Transcript has just published its Investing in Canada Report. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Investing in Canada - Value Investing - Downside Protection - Dividend Yields - Global Macroeconomic Trends

Companies include: CMO, BNS, RY, SU, POT, ABX and many others.

The following excerpt is from the Investing in Canada Report interview with Canadian Securities Expert Manmeet Bhatia:

TWST: Please talk about the sectors you do have heavy weighting in, such as financials, energy and consumer discretionary. Why are those the right places to be in Canada right now?

Mr. Bhatia: Well, as I mentioned before, it's tough to construct a Canadian equity fund without exposure to financials. Financials are the single biggest sector in Canada, representing over 30% of the benchmark. Energy is approximately 25% or so of the benchmark, and similarly, it's tough to ignore this sector as a result.

With regards to the Canadian energy sector, we are more dependent on global demand than we are for the financial sector. The energy sector has traditionally had some relatively strong dividend yields, which represents an opportunity for downside protection in a volatile market. Since we can't predict the future, especially what's going to happen over short term, the only thing you can bank on is a dividend yield that provides you with a base level of protection. So the Canadian financial and energy sectors tend to provide strong dividend yield and downside protection for client investments.

TWST: At the beginning, we talked about the compelling reasons to be invested in Canadian stocks. So on the flip side, what are the most significant risks to investing in Canadian stocks at the moment, and how does OceanRock's investment strategy seek to minimize those risks?

Mr. Bhatia: The fact is that Canada is a component of the global economy, so we are subject to risks on a global basis as well. A slowdown in countries such as China will definitely have a significant impact on certain sectors of our economy. For our export business, China represents a growing portion of revenues to our nation. The United States remains our largest trading partner, and as such, we remain sensitive to slowdowns or recessions in that nation as well.

Being a commodity-based economy, our currency is also sensitive to the price of oil and other commodities. As the price of these commodities decreases, the Canadian dollar takes a hit as well.

The current situation in Europe is another example of a risk to the Canadian market. If the large portion of the world is undergoing sovereign debt problems, the Canadian market is not immune to the risks stemming from decreased demand from these countries and Canadian institutional investments within these countries.

For example, the lack of infrastructure expansion in nations with mounting deficit or debt issues are going to result in lower material prices stemming from decreased demand. This will in turn hurt the bottom line of Canadian material companies. A key to protection against these downturns is avoiding concentration only within two or three sectors, and diversifying investments across a broader range of investment options.

TWST: How would you describe the investor who is going to be a good match for the OceanRock or Meritas Funds or the OceanRock Canadian Equity Fund?

For more from this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers, and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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