Investment

Smart Money: Mackenzie Investments' Dongwei Ye on why she is upbeat on small-cap stocks this year – The Globe and Mail

Published

7 months ago

April 2, 2024

BRE ELBOURN/The Globe and Mail

Dongwei Ye, who grew up in China’s Inner Mongolia region, was 14 when she saw the 1987 Black Monday global stock market crash unfold on TV. Given there was no stock market yet in China, she was mesmerized. Her curiosity about markets led her to earn an MBA in finance at McGill University, and land a job later with Howson Tattersall Investment Counsel, a small-cap-focused firm acquired by Mackenzie Investments. Since 2012, Ye and Scott Carscallen have co-managed the $160.3-million Mackenzie Canadian Small Cap Fund, which has outpaced the S&P/TSX Global Completion Total Return Index over the long term. We asked Ye, 50, why she is upbeat on small-cap stocks this year, and how gold and silver miners fit in her portfolio.

How has your fund managed to beat the index?

We look for quality, Canadian companies with visible growth opportunities. Their stocks need upcoming catalysts, such as potential acquisitions, and trade at a discount to their intrinsic value. We also have low exposure to the cyclical, resource sectors.

Small caps began rallying in October. Is that sustainable?

We are positive on Canadian small caps this year as inflation continues to normalize. Valuations in some pockets of this sector have bounced back sharply from their lows, but they are still cheap by historical measures and compared to large caps. Falling interest rates will help companies reduce borrowing costs, but how many rate cuts there will be is the question. Because we want to own companies that can do well whether there is a hard or soft landing in the economy, we focus on companies with strong balance sheets.

What sector is attractively valued now?

Small caps have been beaten down in the real estate space. The disconnect between their strong underlying fundamentals and depressed valuations, I think, will correct itself. For example, we own Killam Apartment and InterRent real estate investment trusts. These multifamily REITs benefit from strong rent growth due to a housing shortage and rising demand from immigrants. These REITs are better positioned today because they’ve sold buildings that aren’t core to their strategy. They’ve reduced variable debt, and their balance sheets are in better shape.

Some names were winners last year despite higher interest rates and recession fears. Why?

We focus on companies with pricing power. They can pass on raw-material price increases to customers to protect their margins. If they can do that in a downturn, they will do even better in the upcycle. Some Canadian firms also do a lot of business in the larger U.S. market, where consumers are in better shape. Infrastructure spending and the transition to renewable energy have been tailwinds there, too. Our names with big exposure to the U.S. market include Stantec, an engineering firm; Boyd Group, a collision-repair shop operator; and Stella-Jones, a supplier of railway ties and utility poles.

Your fund owns precious metals stocks, such as Alamos Gold, New Gold and Wheaton Precious Metals. What’s the attraction?

It’s more like crisis insurance and represents about 5% of the fund. There are times when nothing works but gold. In the first four months of 2016, the metal rose 20%, and many gold stocks doubled. The headline risk from the Brexit referendum and China’s slowdown helped push some investors into gold as a safe haven. Still, you also need a weaker U.S. dollar for gold to work. And the metal doesn’t do well when interest rates rise. If there is monetary easing this year, precious metals stocks will do better.

Shares of Canada’s big banks have struggled. Why do you like EQB Inc., owner of Equitable Bank?

EQB has generated a 15% to 17% return on equity over business cycles—the highest among Canadian banks. Its stock gained 54% last year and was the group’s best performer. Equitable Bank has done well in its niche, lending to the self-employed and immigrants whose credit scores don’t meet the big banks’ standards. Because EQ Bank is digital, it doesn’t have the cost burden of branches. Its acquisition of Concentra Bank in 2022 was a big boost to assets, and the recent purchase of a majority stake in ACM Advisors gives it wealth management exposure.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

3 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

4 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

4 weeks ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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