The markets may be pricing in a half dozen or so interest-rate hikes from the U.S. Federal Reserve this year amid surging inflation, but money manager Jason Del Vicario isn’t betting on it – even with the market volatility caused by Russia’s invasion of Ukraine.
“I think the market has it wrong,” says Mr. Del Vicario, a portfolio manager with the Hillside Wealth Management team at iA Private Wealth Inc. in Vancouver, who oversees about $200-million in assets. His balanced fund, which has a 70-per-cent equities limit, returned 11.35 per cent year-over-year as of Jan. 31, net of fees.
While inflation has soared, Mr. Del Vicario says it has been driven by government stimulus, supply-chain disruption and the uneven economic recovery amid the continuing global pandemic.
He says factors that weighed on economic growth before the pandemic remain, including slowing population growth, lower productivity, technological advancement and globalization.
“What led to us having low inflation prior to the pandemic is still there,” he says.
Mr. Del Vicario points to the fall of 2018, when the U.S. Federal Reserve chair Jerome Powell stuck to his rising-rate stand even as the markets were dropping.
“And then he did the famous ‘Powell pivot’ and interest rates reversed,” Mr. Del Vicario says. “If I had to guess, I think we’re going to see a repeat of that experience.”
From gasoline to beer: How war in Ukraine could affect inflation
The Globe and Mail recently spoke to Mr. Del Vicario about what he’s been buying and selling and the advice he gives friends about investing:
Describe your investing style
We have a concentrated portfolio of about 20 to 30 high-quality, predictable companies. We are geographic agnostic. We don’t hug indices. We’re really picky about what we buy and the prices that we buy them at. We will only own and initiate positions in these companies at valuation levels where we expect the forward rate of return to be greater than 20 per cent long term. We also like companies that focus on one thing and do it extremely well. Diversified companies make us quite nervous because you have to analyze the revenues and profitability of each business line. We also favour companies that are founder-led and owned and/or have management with significant skin in the game.
What’s your market outlook?
The markets are starting to get exciting for long-term investors like us, as valuations come down. Last year was great and investors felt wealthier, but if you’re adding to your investments over time, you really want lower prices so you can accumulate shares at lower prices. I think if we’re able to deploy capital intelligently in this environment, we will serve our clients very well.
How should investors respond to the volatility we’ve seen lately?
We emphasize three rules to our clients: 1) no short-term money in the stock market; 2) no long-term money in cash or GICs; and 3) don’t look at your portfolio daily – this is what we’re paid to do.
What have you been buying?
We’ve bought a handful of securities since November, including Check Point Software Technologies, a security company based in Israel and listed on the Nasdaq, and Tobila Systems, which trades in Japan.
Checkpoint has been around for a long time: It invented the modern firewall about 30 years ago. It has many of the attributes we like including that it’s founder-owned and run and has high returns on invested capital and produces a lot of free cash flow.
Tobila is a tech company that helps people block spam from their phones. It’s kind of a neat story: The founder originally created the business to help protect his grandfather from scammers. Tobila has a huge database, which in itself is a competitive advantage. It has little or no competition and a huge moat. It’s a very profitable company with high margins, high return on capital and no debt.
What have you been selling?
We sold out of Lightspeed Commerce shares in the fall. It didn’t fit our criteria. It’s just not profitable. I did get wooed a bit by a few high-flying companies, including Lightspeed. We bought it for around $32, sold it at $90, it went to around $160 and now it’s back in the $30-range.
We also sold Boyd Group Services, which runs auto collision businesses. The return on invested capital is in the mid-teens, and we really want our companies to be above 20 per cent. It’s also in retail and we’re a bit biased away from retail these days, especially bricks and mortar retail because it’s quite capital intensive. Even though its free cash flow does look attractive right now, we do think that they’re going to have to spend lots of money to maintain their facilities as well as on the technology of repairing windshields and cars. We exited that stock at around $230 in the fall. The stock is currently trading around $160.
What investing advice do you give friends and family?
When I’m at a party and someone asks me for investing advice, the first thing I say is, ‘Spend less than what you make.’ You can’t go broke spending less than what you make. It’s just like companies: The reason we favour companies with no debt is that it’s very difficult to get into trouble with no debt. Then when people say, ‘Ha ha, just give me something,’ I usually talk about one of my favourite companies, Constellation Software. I can’t go on enough about how exceptionally well run and shareholder-friendly that company is. We’re pretty fortunate to have this company in Canada.
This interview has been edited and condensed.
Special to The Globe and Mail
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