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Michael ArchibaldThe Globe and Mail

There’s a lot of negative sentiment in the stock markets today, which money manager Mike Archibald believes is a good sign for investors in the long term.

“Despite all of the market pessimism that’s out there, I think that the possibility for a market turnaround may not be that far off,” says Mr. Archibald, vice-president and portfolio manager at AGF Investments Inc. in Toronto, who oversees about $375-million in assets.

He believes inflation has peaked in North America and says stock markets are forward-looking and have discounted much of the negative news that comes with rising costs and interest rates.

“The pullback that we’ve seen since mid-August has definitely been frustrating for investors, with North American indexes now approaching their June lows again,” he says. “The market is still very cautious with concerns surrounding how much central bank tightening will affect global economies and when interest rates will ultimately peak, along with the future trajectory of earnings. These are questions that should become clearer towards the end of 2022.”

His AGF Canadian Growth Equity fund has been affected by the defensiveness investors have been feeling. The fund was down 10.2 per cent so far this year, as of Sept. 19, versus a drop of 7.9 per cent for the S&P/TSX Composite. All results are based on total returns and AGF’s performance is net of fees.

Mr. Archibald says his fund’s underperformance is due to his focus on growth stocks, which have been harder hit this year as investors seek safety and defensive assets in sectors such as telecommunications, utilities and consumer staples.

His fund is overweight sectors such as industrials, consumer discretionary and technology. Some of the fund’s top holdings include Canadian National Railway Co. CNR-T and Canadian Pacific Railway Ltd. CP-T, as well as top names in various other sectors such as Bank of Montreal BMO-T, Waste Connections Inc. WCN-T, AltaGas Ltd. ALA-T and CCL Industries Inc CCL-B-T. The largest technology holding is Descartes Systems Group Inc DSG-T.

The Globe and Mail recently spoke with Mr. Archibald about what he’s been buying and selling.

Describe your investing style.

I use both quantitative and fundamental inputs to screen potential investment opportunities. I focus on Canadian growth companies with strong management teams and a track record of growing sales, earnings and cash flows. I invest in all industries in Canada and look at large, mid- and small-cap companies. I typically invest in companies that exhibit better long-term growth rates than the broader TSX.

What have you been buying/adding in recent months?

I have added a few new positions and increased weightings in high-quality companies that continue to exhibit a good outlook for the next 12 months. I have been looking for businesses that can weather the current economic slowdown and continue to outgrow the broader market.

One new holding is CCL Industries, a global manufacturer and supplier of specialty packaging and labels for several industries including cosmetics, pharmaceuticals, automotive and durable goods. CCL is a consistent, long-term grower and trades at an attractive multiple. Most of its end markets continue to show strength. The sell-off earlier this year, in my opinion, represented a great opportunity to buy.

I also increased the fund’s weighting in Waste Connections, one of North America’s top three waste services companies. I’ve owned it for several years. It has a consistent track record of growing revenues, earnings and cash flows. The company has also made several accretive acquisitions over the years to grow its footprint and increase its overall market share.

I also increased the fund’s weighting of Tourmaline Oil Corp. TOU-T, which I consider a core energy holding in any portfolio. It has an excellent management team with a great track record of growing production and cash flow while returning excess capital to shareholders. The company was also recently added to the S&P/TSX 60 Index, which increases visibility and investor interest amongst the largest funds in Canada.

What have you been selling/trimming in recent months?

I reduced my exposure to the materials sector over the past few months. The U.S. dollar has been on a real run, and the associated weakness in metal prices has started to hit the share prices of several companies. Two names I reduced my positions in are Teck Resources Inc. TECK-B-T and West Fraser Timber Co. Ltd WFG-T. I continue to think both businesses are good long-term investments, however, the next few quarters look more challenging given the commodity price moves. They are facing some tougher year-over-year comparable periods as well.

What’s a stock you wish you’d bought, and why?

Boralex Inc. BLX-T I have exposure in the renewables space, specifically Brookfield Renewables Partners, but Boralex has been the strongest performer over the past year. I like the renewables sector over the coming years as global economies look to transition more of their power needs to environmentally friendly sources like wind and hydroelectric. Boralex develops and builds renewable energy facilities in North America and globally. The stock got hit significantly in the COVID crash of 2020, and I missed the opportunity to buy it at a significant discount. However, I continue to follow it closely and hope to have an opportunity to purchase the company in the future.

What investing advice do you give family members when they ask?

I always stress having a consistent and disciplined strategy and sticking to that approach. Not every strategy will work in every type of market, and investors have to be willing to accept some level of volatility and drawdowns when their particular strategy or style is not in favour. Years like 2022 allow investors to assess whether they’re comfortable with the level of risk they have in their portfolios and, if not, give them an opportunity to adjust that risk to something more appropriate for their circumstances. Having a solid long-term plan and consistently looking at that plan annually will ensure you remain on track and meet your long-term goals. Discipline is key.

This interview has been edited and condensed.

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