Why this money manager thinks Canada is the best place to invest over the U.S. right now

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While many investors look around the world for the best places to invest, money manager Robert Gill believes some of the best bets are at home in Canada, especially now.

Mr. Gill, senior vice president and Canadian portfolio manager at Goodreid Investment Counsel Corp. in Toronto, says Canada is cheap with more room for growth.

He notes the S&P/TSX Composite Index is trading at about 13.4 times earnings, while the S&P 500 is trading at about 18.6 times earnings, citing Bloomberg LP data as of May 9. Dividend yields are also 3.2 per cent for Canada and about 1.7 per cent for the S&P 500.

He says the lower multiples provide investors with a “margin of safety” right now relative to the U.S.

“You’re getting paid higher income to invest in Canada, and each dollar you invest gets stretched further simply because the valuations are lower,” says Mr. Gill, who manages $180-million of the firm’s $500-million in assets.

“It’s like you’re buying everything on sale, and then you get a higher income to boot. What’s not to like about that?”

But not just any homegrown stock will do, Mr. Gill argues. Instead, he says investors need to focus on high-quality names. His firm has been beating the benchmark by investing in about two dozen companies and hanging on to them for the long term.

Mr. Gill says the Canadian portfolio he oversees has returned 9.6 per cent year to date as of April 30, compared with a return of 7.6 per cent for the S&P/TSX Composite Index. His portfolio’s one-year return is 13.3 per cent as of April 30 versus a return of 2.7 per cent for the S&P/TSX Composite Index. All data are based on total returns, and Goodreid’s performance is net of fees.

Financials are the largest weighted sector in the portfolio, at 32 per cent, including names like Royal Bank of Canada RY-T, Toronto-Dominion Bank TD-T and insurer Intact Financial Corp. IFC-T. Technology represents about 18 per cent of the portfolio including names such as Constellation Software Inc. CSU-T, CGI Group Inc. GIB-A-T and Topicus.com Inc. TOI-X. Energy is also weighted at about 18 per cent with stocks such as Suncor Energy Inc. SU-T and TC Energy Corp. TRP-T.

The Globe and Mail spoke with Mr. Gill recently about his investing style and what he’s been buying and selling.

Describe your investing style.

We like to buy high-quality securities when they’re temporarily out of favour. And because it takes a long time to do the proper amount of investment research before investing in a company, we generally hold them for a long time. So we’re not concerned about the short-term news and market noise. We also keep our portfolio pretty concentrated, so we generally hold between 20 and 30 names at one time. Anything below that might get too volatile, while anything above it hinders our ability to outperform the market.

What’s your take on the current market environment?

It’s a much different environment than we’ve experienced for the past decade until a year ago. Long gone are the days of lower interest rates, easy money and growth stocks outperforming. In that kind of environment, it was relatively easy to make money with a rising tide lifting all boats. As a result, it’s now more of a stock picker’s market and a good time for active managers.

What have you been buying or adding?

One name we’ve been adding to is TD Bank. We bought more when the shares dropped in March around the start of the latest U.S. banking crisis. It’s going through some short-term noise, but we saw the temporary volatility as a wonderful opportunity to buy a high-quality, well-capitalized Canadian bank.

We’ve also been buying more Bank of Nova Scotia BNS-S shares. Its performance has been trailing the other banks in recent years, and we felt there’s an opportunity for it to catch up. The catalyst is having Scott Thomson join as its new chief executive officer earlier this year, resulting in a review of its business, particularly the Latin American division.

A recent new buy was Canadian Tire Corp. Ltd. CTC-A-T in December. We think the company has done a great job of making the business more defensive by selling items you wouldn’t buy online and have shipped through the mail such as sporting goods, hockey equipment, gardening items and furniture.

What have you been selling or trimming?

We haven’t exited any positions this year, partly because of our strategy to hold stocks longer-term. That said, we sometimes need to trim to raise cash to take advantage of new investment ideas. For example, a couple of stocks we recently sold at their multi-year highs include Stella Jones Inc. SJ-T and Restaurant Brands International Inc. QSR-T, the parent of Tim Hortons and Burger King. We still like both companies, and continue to own them, but we decided to harvest some of the profits and redeploy that capital.

Name a stock you wish you bought or didn’t sell.

CAE Inc. CAE-T, the flight simulation company, is a stock we wish we bought. The stock has doubled since the start of the pandemic. However, that’s not the only reason we wish we owned it. It’s a unique, high-quality business. It’s very good at what it does. We missed buying it at an attractive valuation, but we’re patient investors and continue to monitor it. We’ll consider a purchase if the valuation multiples become more attractive.

What’s your advice for new investors?

First, start saving money early. Live within your means, and set aside some money regularly to be invested for the long term. Also, be intellectually curious and read voraciously about investing. One book I like is The Essays of Warren Buffett: Lessons for Corporate America. It’s filled with folksy humour and investment insight. Then, as your wealth grows and your financial situation becomes more complicated, it’s a good idea to start seeking a professional money manager. Look for someone with a very disciplined and transparent investment process and a history of strong performance, then stick with them over the long term.

This interview has been edited and condensed.

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