Three veteran advisors say investments in AI, the obesity epidemic and a historic rail line should be expected to grow over the long term and generate returns for decades through retirement.Sandipkumar Patel/iStockPhoto / Getty Images
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Artificial intelligence (AI), the obesity epidemic and a historic rail line are some investible themes to consider when making this year’s registered retirement savings plan (RRSP) contribution, according to three veteran advisors.
They say they expect these investments will grow over the long term and generate returns for decades through retirement. Globe Advisor spoke with them further about the rationale for their top RRSP investment picks.
Corrine Spiegel, senior wealth advisor, portfolio manager, Forest Hill Group, Scotia Wealth Management in Toronto
The first rule before choosing an RRSP investment, Ms. Spiegel says, is to ensure it fits within a portfolio that’s diversified among asset classes, sectors and geographic regions. Diversification can limit overall losses when segments of the market go down and expose the entire portfolio to growth opportunities.
Her top pick for diversified portfolios this RRSP season is what she considers the “new utilities” – information-age companies modelled on traditional utilities such as electricity, water and gas.
“The new utilities are the companies we pay money to every month or every year. Those companies will not be able to do anything but grow,” she says.
New utilities in her client portfolios include Microsoft Corp. MSFT-Q, Alphabet Inc. GOOGL-Q, Amazon Inc. AMZN-Q, Apple Inc. AAPL-Q, and Costco Wholesale Corp. COST-Q.
Shares in many of these new utilities have gained between 30 per cent to 60 per cent over the past year as they battle to dominate the flourishing artificial intelligence (AI) space.
“By holding all of them, you’re effectively covering all ground and making sure you’re positioned for the future,” she says.
At the other end of the performance spectrum are real estate investment trusts (REITs), which have taken a double-drubbing from the pandemic and the spike in interest rates.
“The time to buy REITs is now because when interest rates go up, they get battered the most. If interest rates are at a peak, the real estate play is very long and good,” Ms. Spiegel says.
In addition to capital gains, she considers REITs a good alternative to long bonds for their ability to generate income over long periods of time. Her top pick is Allied Properties AP-UN-T, an office REIT that’s trading at less than half its pre-pandemic value.
“Allied properties has been really beat up by the work-from-home trend. I think people will go back to the office, but regardless Allied is paying double-digit yields on the dip,” she says.
Stephanie Douglas, partner and portfolio manager, Harris Douglas Asset Management Inc. in Toronto
The big Canadian banks are also ideal RRSP income generators and Ms. Douglas singles out Toronto Dominion Bank TD-T because it has the largest presence in the U.S.
“TD has a strong franchise in the U.S. and it has a very diversified business model,” she says.
Rising interest rates have trimmed more than 13 per cent from TD shares over the past year but she considers it a bargain as central banks start easing.
“We believe market expectations for earnings and growth are very low, so in 2024, we think Canadian banks will beat their expectations,” Ms. Douglas says.
Denmark-based pharmaceutical giant Novo Nordisk A/S NVO-N, maker of diabetes drug Ozempic, also tops her RRSP investment list. Shares have skyrocketed by 362 per cent over the past five years on the drug’s ability to treat obesity, a common cause of type 2 diabetes.
“We believe Novo Nordisk will continue to generate billions of dollars from this drug, especially if insurance companies start to pay for it for obesity. They currently cover it for diabetes but because obesity is classified as a condition, not a disease, they won’t cover it for obesity,” she says.
As the baby boom generation ages, she expects other health care companies to thrive including Johnson & Johnson JNJ-N, Stryker Corp. SYK-N and Zoetis Inc. ZTS-N.
Jay Smith, branch manager, investment advisor, CIBC Wood Gundy in Toronto
Mr. Smith expects long-term growth for the semiconductor sector despite almost already tripling in value over the past five years.
“The semiconductor theme is a decade-long one,” he says.
His top semiconductor pick is Nvidia Corp. NVDA-Q, which saw its shares increase by 230 per cent in the past year alone as the chipmaker took a clear lead in AI.
“Nvidia is the semiconductor stock for artificial intelligence. It’s way ahead of everybody else. I want direct exposure to that,” Mr. Smith says.
In the Canadian technology space, he recommends Constellation Software Inc. CSU-T as a long-term RRSP holding. Shares in the software provider climbed 285 per cent in the past five years as the company went on an acquisition spree during the pandemic.
“It’s a Canadian company that continues to buy and add value to other companies through companies they already own,” he says.
Another Canadian company on the low-tech end of the spectrum that he expects to grow over the long term is Canadian Pacific Kansas City CP-T. The mega rail hauler was created last April with Canadian Pacific Railway’s US$31-billion acquisition of Kansas City Southern.
The event was marked by a ceremony in Knoche Yard, Kansas City – the only place the two railroads touch, creating the first railroad to link Canada, the U.S., and Mexico.
“The acquisition of Kansas City Southern completely changes that railway and takes it ahead of a lot of other ones because it goes from the Yukon to the Southern tip of Mexico now,” he says.
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