For money manager Ryan Bushell it’s no longer a question of whether a recession will come, but when, given the current pace of interest rate hikes.
“I don’t see how a recession can be avoided if central banks tighten interest rates to the extent that’s being priced in by the market right now,” says Mr. Bushell, president and portfolio manager at Newhaven Asset Management in Toronto, who manages about $280-million in assets.
“This was always the worry; that central banks would paint themselves into a corner” by pouring money into the financial system and keeping rates low, “leaving them with no choice but to raise rates even if the economy weakens,” he says. The Ukraine crisis and its impact on commodity prices have added to inflation concerns.
Mr. Bushell feels relatively prepared for a potential recession by putting together client portfolios he believes can stand up to different market environments.
“I look to own companies with long-term sustainable cash flows that respect their shareholders with a consistently increasing dividend,” he says. His focus is largely on infrastructure investments, particularly energy, telecommunications, gas and electric utilities and renewable power.
“I’m also concerned about protecting capital from inflation, so we keep a position in commodity producers with low-cost operations in stable political jurisdictions.”
As of March 31, Mr. Bushell’s portfolio of 25 to 30 stocks has seen an annualized total return of about 11.6 per cent since he joined Newhaven in April, 2018. The one-year total return is 26 per cent.
The Globe and Mail recently spoke to Mr. Bushell about what he’s been buying and selling:
What’s your take on the current market environment?
I believe we’re in the late stages of the economic expansion and bull market that has been fuelled by stimulus-related to COVID-19. There could be tougher times ahead for most asset classes if governments and central banks maintain a tougher stance on inflation in the coming months and years.
What have you been buying or adding in recent months?
I’ve been very patient in deploying capital in recent months. For new clients, I have been adding to energy infrastructure positions like Pembina Pipeline, Enbridge and AltaGas, and renewable power producers and utilities, including Algonquin Power, Northland Power and Brookfield Renewables. That said, I have been tapering purchases in these areas more recently amid a runup in their valuations. I have also been adding to some select industrial names such as Aecon, K-Bro Linen and NFI Group – a market area that seems undervalued right now. These are smaller positions.
What have you been selling or trimming in recent months?
I recently trimmed my position in Nutrien following its fantastic run. I purchased it for clients between $45 and $65 before early 2021 and trimmed it recently at around $130, while still maintaining my initial target weighting of about 2.5 per cent in client accounts. I still want to be invested in the name because I think it’s a unique Canadian company with a global reach that has a good long-term story. I just felt it would be silly of me not to protect at least some of that shorter-term profit. I also sold half of my Shaw Communications position at about $38.50 as it approached the takeover price from Rogers of $40.50. My average cost base for clients is about $24, so I wanted to protect some of that profit in case something unexpected happens with the regulatory review.
What’s a stock you wish you’d bought, or hadn’t sold, and why?
I sold Thomson Reuters in 2018 at around US$60. It’s now trading around US$100 per share. I owned the company through its many struggles and felt happy about selling at the time for a substantial gain. Unfortunately, I didn’t recognize the transition at the company that was underway and the market’s increased appetite for technology companies. I was too tied to the old story of the company. The experience taught me not to let historical baggage or prices affect your decision on the go-forward potential of a company.
What investing advice do you give family members when they ask?
I give them the same advice that I give everyone: Buy investments that you can depend on; that you understand and can stick with during times of uncertainty. Investors can make harmful mistakes when there’s volatility – whether the investment is up or down. They either panic-sell at the bottom or buy at the top because they have FOMO. I believe a portfolio with strong, dividend-paying stocks is a good long-term risk-reward proposition for someone’s savings.
This interview has been edited and condensed.
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