We’re looking to Canada for defensive investments, this portfolio manager says

An uptick in oil prices and a big rally by the pot stocks have played into the TSX’s sparkling beginning to the new year. But even as interest turns towards the Canadian market, investors may want to look at more defensive options such as the Canadian telcos, says Andrew Pink of LDIC Inc, who claims the volatility in the markets may not be over.

The S&P/TSX Composite Index hit its highest level in four months this week, reaching 15,745.34 by midday on Wednesday, buoyed by technology, energy and health care sectors, with cannabis companies featuring heavily in the mix, as names like Canopy Growth Corp and Cronos Group posted huge gains over the month of January.

And while the US markets are also doing well, Canada is doing a hair better. So far for 2019, the S&P 500 is up 8.9 per cent while the S&P/TSX Composite is up 9.8 per cent. It’s a sign that this might be the year of outperformance by Canadian markets versus their American cousins, with part of the reasoning being the more attractive options for Canadian investors looking for security, says Pink.

“We’ve been predominantly Canadian for a long time and about two to three years ago we shifted a lot of weight into the US,” says Pink, portfolio manager at LDIC Inc, in conversation with BNN Bloomberg TUesday. “Their economy was better, there were better opportunities and there’s certainly a lot more selection in the US. Up until midway through Q4, and then we started to unweight that a little bit with the volatility in the markets when we moved back into some more defensive positioning here in Canada. We’ve bought Rogers, recently, for example. The telcos have been a very stable part of the Canadian economy for a long time.”

Why the focus on Canadian defensive stocks when there are a lot of similar options in the US? Pink says that it comes down to the tax benefits north of the border.

“We have Canadian investors that we invest on behalf of and the tax benefit of them getting a Canadian dividend over a US dividend is substantial, so our clients get a break on the Canadian dividend tax credit,” he says.

“Another name is CAE,” says Pink. “We look at that as another reasonably good long-term platform to invest in. A small dividend but it’s somewhat not dependent on the economy and is more dependent on some macro themes [including] that we’ve got a huge pilot shortage and we need to train pilots and this company is getting great long-term contracts and we expect that to persist for ten years. That isn’t dependent on the economy.”

“We got more defensive as the market was collapsing into December. We’re going to stay more defensive. We’re not sure that the volatility is over yet,” he says.