Good Morning!
As advisors look at the value proposition of value (no pun intended) vs growth going in 2022. Canadian employment has more than recovered from the COVID-19 dip, fiscal policy continues to be supportive and vaccination rates are high. Inflation hit 4.2% in November in Canada and the Bank of Canada is left with few excuses to hold off on increasing interest rates by mid-2022.
With this in mind we believe Canadian equities are well positioned for 2022 for the following reasons;
- Rising energy prices supports the Canadian oil & gas sector.
- The materials sector continues to trade at a discount due to heavy exposure to gold.
- Rising interest rates will be supportive of Canadian financials.
- Dividend growth and share buybacks will be a key theme to watch in 2022 and beyond.
Lastly, historically when inflation exceeds 4% for an extended period of time, the TSX outperforms the S&P 500 (with an annualized return of 2.3% vs -5.9%).
The following teams provides opportunities and products within the Canadian space;
Portfolio Management
- Uses a three prong approach focusing on;
- Free cash flow—The team seeks companies that generate cash in excess of what’s needed to run the business. If a company can’t generate more cash than it needs to operate, the long-term viability of the business can be cause for serious concern.
- Sustainability—The team develops a deep understanding of the quality of the business itself and its managers. Not only must the business generate free cash flow, but it must also be sustainable and growing. A disciplined management team that knows how to reinvest that cash wisely to create greater cash flows in the future is a hallmark of a successful business.
- Valuation—The team uses in-house, proprietary valuation models to stress-test scenarios that can affect business cash flow. Global and local economic factors, new regulations, tariffs, and many more factors can have a material impact on businesses.
- Free cash flow—The team seeks companies that generate cash in excess of what’s needed to run the business. If a company can’t generate more cash than it needs to operate, the long-term viability of the business can be cause for serious concern.
- Investment process capitalizes on;
- Funds are built as business conglomerates—Each stock is thought of as a division of a business.
- Diversification by business risk—Holding stocks that engage in different businesses helps to limit risks to the overall fund.
- Downside protection—Because of their composition, the team’s funds tend to decrease less than the markets when a correction occurs.
- Funds are built as business conglomerates—Each stock is thought of as a division of a business.
- ETF products utilize the following process;
- Quantitative research
- Equity market research
- Dividend screening
- Factor optimization
- Efficient trading
- Quantitative research
Funds to consider include;
Equity ETFs
Smart Dividend CDIV
Smart Defensive Equity CDEF
Fixed Income ETFs
Smart Corporate Bond CBND
Smart Core Bond BSKT
Segregated Fund ETFs
Smart Dividend SF
Smart Corporate Bond SF
Smart Balanced Dividend Bundle SF
Balanced Funds
Fundamental Balanced Class (Canadian Equity Balanced) MF
Fundamental Income (Canadian Balanced) MF
Tactical Income (Tactical Balanced) MF
Equity Funds
Canadian Equity Class (Canadian Equity) MF
Dividend Income (Canadian Focused Equity) MF | SF
Canadian Dividend Growth (Canadian Dividend & Income Equity) MF
Fundamental Dividend (Canadian Dividend & Equity) MF | SF
Fundamental Equity (Canadian Focused Equity) MF | SF
If you have any questions or would like further details, please let us know!
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