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.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
