Bruce Campbell of StoneCastle Investment Management Inc.The Globe and Mail
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Around this time last year, money manager Bruce Campbell noticed a shift in investor sentiment – for the better.
“The selling momentum was starting to subside,” says the founder and portfolio manager at StoneCastle Investment Management Inc. in Kelowna, B.C., citing technical analysis his firm uses as part of its investment strategy.
“It didn’t mean that the markets weren’t still going down, but the pressure of people wanting to sell and get out was starting to diminish.”
He noted many stocks started to rise at the start of this year, led by the “Magnificent Seven,” which includes technology heavy hitters Microsoft Corp. MSFT-Q, Apple Inc. AAPL-Q, Nvidia Corp. NVDA-Q, Tesla Inc. TSLA-Q, Google parent Alphabet Inc. GOOG-Q, Meta Platforms Inc. META-Q and Amazon.com Inc. AMZN-Q.
The trend led Mr. Campbell to start deploying cash built up in his portfolio last year when he was being more defensive. Today, that portfolio is almost fully invested, despite rising interest rates and continuous forecasts of a looming recession.
“We don’t debate that we’re going have another recession,” says Mr. Campbell, who oversees about $75-million in assets. “We just don’t know when that will be, and we feel we can invest and have a potential period to generate returns before that recession hits.”
His portfolio, which focuses on Canadian-based small- and mid-cap companies, has returned 8 per cent over the past month and is flat year-to-date. Its compound average annual return during the past decade is 6.4 per cent. The performance is as of July 18 and is net of fees.
The Globe and Mail spoke with Mr. Campbell recently about his investment style and what he’s been buying and selling.
Describe your investing style.
We have a top-down strategy in which we’re trying to figure out whether we’re on offence or defence at any given time. The past 36 months have been pretty challenging given the extreme volatility.
We look for companies we believe will have accelerated earnings growth. We do this for two main reasons. First, as earnings trend higher, stock prices tend to follow. Then, the multiple goes up as investors start to pay more attention. So, we can get multiple expansions, plus the increase in earnings. When we find something with a catalyst, we tend to find outsized returns.
What have you been buying?
One company we started buying about three months ago and have been adding to since is materials technology firm Shawcor Ltd. MATR-T, which recently rebranded itself Mattr Infratech. It has decided to sell its pipeline coating business and plans to use the proceeds to expand the industrial side of the business.
On the technology side, we’ve been buying Celestica Inc. CLS-T as an artificial intelligence (AI) play. The company will build a lot of the technology that will end up being sold as AI. The stock has been strong and still trades at what we consider a reasonable valuation.
We’ve also added to our energy exposure, including Trican Well Service Ltd. TCW-T. If and when the economy expands, we’ll see more drilling activity. The stock will also benefit when [liquefied natural gas] comes online in 2025 due to increased natural gas drilling.
What have you been selling?
We’ve been reducing our exposure to utilities. As interest rates have gone up, those companies have been under pressure. A name we sold out of in that sector was Capital Power Corp. CPX-T.
Name a stock you wished you bought.
Patriot Battery Metals Inc. PMET-X, the hard-rock lithium explorer, is a stock we’ve been watching but didn’t buy. The stock has shot up this year based on drill results at its Corvette Property in Quebec. It was trading at about $2 or $3 [a share] when we looked at it, and now it’s up around $15. So, we missed that one.
What advice do you have for new investors?
Understand what you own and be patient. The challenge many investors have is staying put when the headlines are scary. But if you know the companies you own and can hold on to them, the thesis behind why you own it should still transpire. Also, you want to be diversified, especially when the economy looks like it could be headed for recession. You want to spread the risk across sectors that will fare differently.
This interview has been edited and condensed.
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