Marcello Montanari of RBC Global Asset Management.The Globe and Mail
Today’s declining interest-rate environment is providing investment opportunities for growth-oriented money manager Marcello Montanari, particularly in the life sciences and technology space in which he invests.
“It’s a positive backdrop for the young, less mature, faster-growing companies,” says Mr. Montanari, managing director and senior portfolio manager, North American equities at RBC Global Asset Management Inc., who oversees about $6.3-billion across various growth strategies.
Mr. Montanari describes his team “first and foremost” as business analysts who try to understand industries and businesses, and then as stock analysts who use their picks to build durable portfolios.
An example is the $2.1-billion RBC Life Sciences and Technology Fund he co-manages with Rob Cavallo. The fund mixes life sciences and technology to create a “barbell approach” that balances companies across sectors such as technology, health care and communication services, with some exposure to financials, industrials and consumer discretionary stocks.
“Depending on economic conditions, we will toggle this barbell back and forth to reflect whether we want to be more defensive or more aggressive with the portfolio,” Mr. Montanari says.
The fund’s top holdings as of Aug. 31 were Nvidia Corp. NVDA-Q at 10.5 per cent, Apple Inc. AAPL-Q at 9.6 per cent, Google parent Alphabet Inc. GOOG-Q at 7.3 per cent and Facebook and Instagram parent Meta Platforms Inc. META-Q at 5.2 per cent.
Eli Lilly & Co. LLY-N is the top health care holding and the sixth-largest position at 3.7 per cent, followed by UnitedHealth Group Inc. UNH-N at 2.7 per cent.
The fund has returned 25.4 per cent year to date and 31.9 per cent over the past 12 months. Its three-year annualized return is 12.3 per cent and its 10-year annualized return is 18.4 per cent. The performance is based on total returns, net of fees, as of Aug. 31.
The Globe and Mail spoke with Mr. Montanari about what he’s been buying and selling:
Name three stocks you’ve been buying and continue to own.
Crowdstrike Holdings Inc. CRWD-Q, the Austin, Tex.-based cybersecurity giant, is a stock we started buying in August, not long after a botched deployment of the company’s security software caused a global outage. It’s what we as investors call a “man overboard” situation – when something bad happens and the stock gets thrown overboard.
Because it wasn’t an earnings-driven event and damage control was swift, we saw it as an opportunity to buy the stock. Customer retention in the security software space is quite good, and cybersecurity is one of the top IT budget priorities for most companies. We own the stock in another fund and saw an opportunity to add it to RBC Life Sciences and Technology Fund after this incident. It’s been a good decision so far.
Ciena Corp. CIEN-N, the Hanover, Md.-based networking equipment, software and services company, is a stock we bought back in August. The company is known to many Canadians for buying up key assets from the Nortel Networks Corp. bankruptcy in 2009.
Ciena’s traditional business supplies telecommunications and cable companies with gear, which is turning around after a glut of inventories during the pandemic. We believe it will be a key participant in artificial intelligence infrastructure, with a new product cycle coming out specifically for data centres.
Texas Instruments Inc. TXN-Q, the Dallas-based semiconductor company, is another stock we started buying in September. We sold the stock in the fall of 2023 owing to concerns about overbuilding capacity across the industry, which you don’t want to see in the semiconductor space because too much capacity and competition drive down prices. Today, we have a greater understanding and comfort with its expansion plans, and it shouldn’t lead to overbuilding.
The company is also well positioned to benefit when industrial markets start to pick up, given our view that the interest rate-cutting cycle is before us.
Name a stock you recently sold.
Google parent Alphabet Inc. GOOG-Q is a stock we trimmed in the late spring. We were getting concerned about the narrative around the company, given the antitrust court cases suggesting it’s running a monopoly. We were also worried about market reaction to the news flow regarding hefty consequences, such as a breakup of the company. We went from a 10-per-cent to 20-per-cent overweight exposure to 10 per cent to 15 per cent underweight.
We started to buy back some of the shares in August after the Wall Street Journal reported what the Department of Justice (DOJ) would be looking for from the company. The muted response to the DOJ’s actual filing last week would indicate the bulk of the bad news is in the stock price. And typically, worst-case antitrust scenarios don’t happen. Let’s face it: Google has a monopoly on search engines because they’re great at what they do. Our position is more balanced today, roughly in line with the benchmark.
This interview has been edited and condensed.