The Globe and Mail - 13.03.2020

B8 O THEGLOBEANDMAIL| FRIDAY, MARCH 13, 2020

EYE ON EQUITIESDAVID LEEDER

SECURE ENERGY (SES-TSX)
CLOSE$1.18,DOWN40¢

SEVENGENERATIONS (VII-TSX)

CLOSE$1.89,DOWN19¢

MORNEAU SHEPELL (MSI-TSX)

CLOSE$29.10,DOWN$2.88

BIRD CONSTRUCTION (BDT-TSX)

CLOSE$5.01,DOWN15¢

BROOKFIELD (BEP.UN-TSX)

CLOSE$55.04,DOWN$6.32

Seeing a “worsening macro back-
drop” weighing heavily on its
2020 earnings, Industrial Alliance
Securities analyst Elias Foscolos
loweredSecure Energy Services
Inc.to “hold” from “buy.” “We be-
lieve that any growth from orga-
nic expansion will be more than
offset by decreased drilling &
completions activity,” he said.
Target:Mr. Foscolos lowered his
target price for Secure shares to
$3.25 from $6.75. The consensus
target is $6.50.

Raymond James analyst Chris

Cox raised its rating forSeven

Generations Energy Ltd.to “out-

perform” from “market perform.”

“With a relatively lower risk pro-

file than peers, we believe the

market will circle back to this sto-

ry as one where the recent sell-off

has been overdone,” he said.

Target:Mr. Cox’s target slid to

$5.50 from $10. Consensus is

$11.33.

Calling it a “high-quality stock

with defensive-growth character-

istics,” Scotia Capital analyst Phil

Hardie raisedMorneau Shepell

Inc.to “sector outperform” from

“sector perform.” “MSI has a pro-

ven track record of resilience and

has demonstrated the ability to

grow its revenues under a wide

range of macroeconomic and fi-

nancial market conditions,” he

said.

Target:Mr. Hardie raised his tar-

get to $38, which is the current

consensus, from $36.

Saying it’s “adequately de-risked”

after the release of fourth-quarter

resultsthatexceededhisexpecta-

tions, Canaccord Genuity analyst

Yuri Lynk upgradedBird Con-

struction Inc.to “buy” from

“hold.” “By all accounts, Teri

McKibbon, President & CEO, has

put his stamp on the company by

reducing Bird’s risk profile while

improving margins,” Mr. Lynk

said.

Target:Mr. Lynk maintained a $7

target. Consensus is $8.88.

Touting its “powerful positives,”

Credit Suisse analyst Andrew

Kuske raisedBrookfield Renew-

able Partners LPto “neutral”

from “underperform.” “BEP faces

anumberofthematicallypositive

trends given the firm’s large scale

and global renewable power gen-

eration platform amidst the long-

er-term de-carbonization of the

power system,” he said.

Target:Mr. Kuske raised his tar-

get to $64 from $60. Consensus is

$62.96.

| REPORTONBUSINESS

T

he downward spiral of
global stocks, which has
pushed Wall and Bay
streets into bear territory, has
portfolio managers reviewing
their strategies of how to protect
investors in the short term while
maintaining long-term invest-
ment goals. In Toronto Thursday
afternoon, the S&P/TSX Com-
posite Index saw its biggest drop
since 1940. The Globe and Mail
spoke with a handful of Cana-
dian portfolio managers about
their approach during this next
leg of the market downturn.

Terry Shaunessy, president
and portfolio manager at Cal-
gary-based Shaunessy Invest-
ment Counsel Inc., says the
speed of the downturn “has been
remarkable” as compared with
other market sell-offs in history.
His concern is that investors
will make a big “but quite under-
standable” mistake of selling
their investment amid the tur-
moil.
In a note to clients on Wednes-
day, Mr. Shaunessy also cited the
risks of trying to find the right
time to get in and out of the mar-
ket in a correction. “Market tim-
ing doesn’t work, but rebalancing
does,” he wrote.” It is nearly im-
possible to time a market rally,
but the process of rebalancing –
reducing fixed income and buy-
ing equities – always works.”
He says he believes the safest
place to be today is global bal-
anced portfolios. “A mix of fixed
income and global equities offers
the best combination of down-
side protection and eventual up-
side capture,” he wrote, adding
that while markets are down
more than 20 per cent in the past
three weeks, a 60/40 benchmark
portfolio was down approxi-
mately 10 per cent (as of March
10) “and will benefit from the
coming rally.”

Daniel Goodman, president
and chief executive of GFI In-
vestment Counsel Ltd.,says he’s
adding to his personal long term
savings “and not because I see an
imminent bounce.
“I know that with the fullness
of time, this will play out and
normalcy will return to the great
businesses we own,” he says,
adding that his firm has “success-
fully avoided areas or industries
that face obsolescence risk or
lack pricing power and our cli-
ents have benefited tremendous-
ly.”
Mr. Goodman says his firm
doesn’t invest in fads, “so we are
confident that we aren’t going to
face permanent loss of capital
with our investments.”
In a note to clients on Monday,
Mr. Goodman tried to ease inves-
tor fears by saying that, while no-
body can accurately forecast the
length and overall severity of the
current market turmoil, “we can
say with extreme conviction ...
that this too shall pass and as dif-
ficult as it may be, the best
course of action is to maintain a

high-quality portfolio of best in

class businesses.”

He said that his clients stayed

invested during the 2008-09 fi-

nancial crisis and during the

market downturn in late 2018.

“All of you are significantly better

off for it,” he wrote.

Mr. Goodman also told clients

that the firm will remain pro-ac-

tive “to identify any unique op-

portunities.”

Anish Chopra, managing di-

rector at Portfolio Management

Corp.,says his firm is looking at

“numerous opportunities to buy

high-quality names,” amid the

significant market declines.

“Some companies and indus-

tries have been hit harder than

others and we are assessing

whether to rotate out of certain

companies and industries and

into others,” he says, without of-

fering specifics, citing “compli-

ance reasons.”

He also called the coronavirus

is “a global tragedy for human-

ity.”

While it’s impossible to fore-

cast the future for markets, Mr.

Chopra said more clarity about

the spread of the coronavirus

“will certainly help markets bet-

ter assess the economic fallout.”

He advises investors to stick to

their financial plan, or review

and adjust it as needed.

“Markets have been very kind

for a long time and now the risks

to investing in equities are very

apparent given the recent mar-

ketmoves,”hesays.

Kash Pashootan, CEO and

chief investment officer at First

Avenue Investment Counsel

Inc.,sees some short-term trad-

ing opportunities, but believes

equities have further downside

from here.

“The velocity of change is rap-

id and so defence can turn into

offence quickly,” he says. “We are

preparing to see this market bot-

tom soon.”

Meantime, Mr. Pashootan says

he’s also relieved, in part, to see

the sell-off “only because we be-

lieve upcoming corporate earn-

ings misses are going to be shock-

ing. Without this sell-off, stock

prices would need to pay the

piper later.”

He believes many investors

are mistaking this sell-off as mar-

ket volatility “when, in fact, it’s

justified declines due to the de-

struction of earnings in upcom-

ing quarterly results.”

He sees COVID-19 having a

material impact on demand,

spending, corporate earnings, ec-

onomic growth and will lead the

U.S. to a recession.

“It will not be the end of the

world but don’t fool yourself by

not accepting that this will im-

pact all sectors of the economy

and has global market reach,” he

says. “Welcome to 2008 version

2.”

Jason Del Vicario, a portfolio

manager at HollisWealth in Van-

couver,says his firm has a strict

stop-loss strategy. “For every se-

curity we own, we have two pric-

es; if the first is breached, we sell

50 per cent, if second is breached,

we sell 100 per cent,” he says.

Over the past two weeks, his

firm has stopped completely out

of names such as Mastercard Inc.,

Facebook Inc, Starbucks Corp.

and Badger Daylighting Ltd. and

stopped 50 per cent out of com-

panies such as Open Text Corp.,

Boyd Gaming Corp. and Kirkland

Lake Gold Ltd.

“We have deployed the pro-

ceeds into mostly cash,” he says,

evenly split between Canadian

and U.S. dollars.

They’ve also doubled their po-

sition in iShares Gold Trust to 8

per cent from 4 per cent.

He also says they took the “un-

usual step” of selling 40 per cent

of its holdings in the iShares 20+

Year Treasury Bond ETF “which

we’ve been a big proponent of as

a hedge as it went parabolic.” He

says it was sold near the highs.

“We also sold the remaining

half of our treasury positions to-

day [Thursday] because they

stopped acting like hedges and

we are hearing there are huge is-

sues and risks in the repo mar-

ket,” he says. “I now see the NY

Fed has added $1-trillion to help

alleviate the liquidity issues

there.”

Mr. Del Vicario believes the sit-

uation is worse than 2008. “In

2008, we didn’t see the markets

tank this much this quickly until

the fall of 2008 and there was

time prior to that to put one’s

ducks in a row,” he says. “What is

amazing to me is we are seeing

this volatility before any real eco-

nomic or corporate earnings re-

leases that start to demonstrate

the full impact of this virus/

downturn. I will also note that

this started with risk assets at all

time highs both in absolute

terms but more importantly val-

ue-wise as well.”

He says they’ll get back in if or

when one of two things happens:

securities he likes, or the market

in general, “demonstrate

strength and clear previous lev-

els of resistance. So the opposite

of our stop-loss discipline in ef-

fect.” Or, if prices get to levels

where he feels the company or

stock is “quite undervalued from

a historical perspective.”

Sean Oye, a portfolio man-

ager with Nicola Wealth in Van-

couver,says his firm has been ac-

tive in its U.S. and Canadian

funds with call and put options

“to take advantage of the high

option volatility premiums on

high-quality names.”

For instance, he says Canadian

banks “look very attractive” right

now having fallen between about

22 per cent and 37 per cent.

“When oil prices dropped over 20

per cent this week, most bank

stocks fell by a similar amount

despite only having about 2 per

cent in total gross oil and gas

loan exposure,” Mr. Oye says,

adding that bank stocks are pay-

ing dividend yields of more than

5 per cent.

He also says waste-manage-

ment companies, which are do-

mestic-focused and considered

essential services regardless of

the economic environment, are

attractive. ” Many of the waste

companies we follow are off 15

[per cent] to 20 per cent from

their recent peaks,” Mr. Oye says.

“The large public waste compa-

nies have a long history of paying

dividends, buying back shares

and making accretive acquisi-

tions in distressed environ-

ments.”

Over all, he says he believes

that the markets could face a ‘W-

shaped’ recovery, “where we still

may see some further downside

from here, followed by fiscal

stimulus packages providing a

temporary boost to market, then

a nervous market in the fall due

to the U.S. election, followed by a

recovery assuming the incum-

bent Party stays in office.”

Mr. Oye said the overall strate-

gy of his firm’s equity funds has

been consistent “as our portfolio

tends to focus on quality names

that have low leverage and rea-

sonable valuations relative to

earnings growth. We don’t try

and time the market per se by

making large sector shifts in our

funds, but we do take opportuni-

ties to high grade the portfolio as

opportunities present them-

selves.”

Christine Poole, CEO and

managing director at GlobeIn-

vest Capital Management Inc. in

Toronto,says the coronavirus

contagion will continue to dis-

rupt commercial activity and

dampen consumer spending be-

cause of cancelled travel and

events.

“It is difficult to forecast when

the level of COVID-19 cases will

peak,” she says.

“However, based on the expe-

riences of China and South Ko-

rea, the outbreak should eventu-

ally dissipate, aided by contain-

ment policies.”

Ms. Poole says monetary and

fiscal policy responses will help

to buffer the negative impact of

the virus and collapse in oil pric-

es. “We expect economic growth

will slow significantly over the

first half of the year with a poten-

tial for a back half recovery as-

suming the coronavirus is a tran-

sitory issue,” she says.

“Nonetheless, until there is

more clarity on its evolution, un-

certainty prevails resulting in ele-

vated stock market volatility exa-

cerbated by algorithmic driven

trading activity.”

She adds that the speed of the

market correction “and wide

price gyrations in the broad mar-

ket indices has significantly

dampened investor sentiment

and increased investor angst.”

Ms. Poole is encouraging her

clients to focus on the long term

given their portfolios include

“high quality, financially sound

companies that can weather the

economic cycle.”

She says the firm is finding at-

tractive value in many income

and growth stocks “and deploy-

ing available cash at a measured

pace on pullbacks.”

She says some income stocks

they’re buying include utilities

such as Algonquin Power and

Utilities Corp. and Fortis Inc. and

growth stocks such as Brookfield

Asset Management Inc. and Mi-

crosoft Corp.

Special to The Globe and Mail

HowCanadianfundmanagersarereacting

tooneoftheworstdaysforBayStreet

AstheS&P/TSXseesitsbiggestdropindecades,expertssharetheirthoughtsonwhathappenedandwhattodonext

BRENDA BOUW

INSIDETHEMARKET

People walk outside the Bank of Montreal stock ticker display in Toronto on Thursday.

Canadian bank stocks may look appealing during the market turmoil as they have

fallen between about 22 per cent and 37 per cent, one portfolio manager says.

FREDLUM/THEGLOBEANDMAIL