David Driscoll, CEO and CIO, Liberty International Investment Management

FOCUS: Global equities

Top Picks: Chubb, TC Energy, Lagercrantz Group

MARKET OUTLOOK:

We’ve enjoyed a “risk on” market for the past 2.5 years where, rightly, or wrongly, investors have chased after unicorns and rainbows into crowded trades such as Bitcoin and Artificial Intelligence in the hopes of becoming instant millionaires. These markets create momentum for just a few stocks and tend to last two to three years.

Since the end of January and the scare of tariff wars, the market has moved to a “risk off” mentality where investors pull their money out of the “risk on” trades to go hide in safer investments. The last time we saw “risk off” markets was in 2018 and in 2011. In 2018 it was caused by U.S. President Donald Trump’s trade war with China, a slowdown in global economic growth and concern that the U.S. Federal Reserve was raising interest rates too quickly. In 2011, it was caused by a debt crisis in Europe and a fear of a double dip recession.

Year-to-date, the big losers are the Magnificent Seven (down an average 13 per cent), the U.S. Dollar (down four per cent against a basket of global currencies), the Russell 2,000 Small-Cap Index (down eight per cent) and the Nasdaq technology index (also down eight per cent). The current winners are Europe (up eight per cent), the S&P/TSX Composite Index Index (up one per cent because of higher gold prices), bonds, preferred shares and Emerging Market stocks (up six per cent).

What saves investors during “risk off” market is diversification. Instead of putting all investable eggs into one or two baskets, diversification reduces the potential downside losses. Avoiding the big loss keeps investors in the game for the long run. The less they fall, the faster they can make back their money.

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TOP PICKS:

CHUBB (CB NYSE)

A global property and casualty insurer. Insurance companies still hold pricing power and Chubb has among the lowest combined ratios in the insurance industry. It trades around 12 times earnings and yields 1.25 per cent. Its investment portfolio is all bonds, so an equity sell-off wouldn’t have any impact on its earnings. Year-to-date, the stock is up 5.5 per cent.

TC ENERGY (TRP TSX)

An energy infrastructure company with natural gas pipelines and investments in nuclear power plants. Profit and dividend growth is expected to be small, but it benefits from natural gas demand throughout North America. It trades around 17 times earnings and offers a 4.89 per cent dividend yield. The stock is up 3.75 per cent year-to-date.

LAGERCRANTZ GROUP AB (LAGRB SS)

An industrial conglomerate that is a serial acquirer of small private companies to help grow its revenues (13 per cent in 2024) and profits (12 per cent in 2024) faster than global gross domestic product (GDP) growth (two per cent). It trades around 40 times earnings, which is higher-than-average for a small-cap growth stock but worth the premium. The dividend yield is only 0.85 per cent but the dividend has grown annually in the mid-teens. The stock is up eight per cent year-to-date.

PAST PICKS: July 2, 2024

CARL ZEISS MEDITEC (AFX FRA)

• Then: EUR€64.90
• Now: EUR€68.80
• Return: 6%
• Total Return: 6%

ENGHOUSE SYSTEMS (ENGH TSX)

• Then: $30.56
• Now: $26.64
• Return: -13%
• Total Return: -10%

SPECTRIS (SXS LSE)

• Then: GBP£2820.00
• Now: GBP£2436.00
• Return: -14%
• Total Return: -13%

Total Return Average: -6%