Tomorrow never dies: finding opportunity amid the storm

Portfolio manager says what investors are seeking ‘tomorrow’ may be available right now despite headline worries and volatility

Tomorrow never dies: finding opportunity amid the storm

Investors have been warned not to get too caught up in the day-to-day volatility and forget what tomorrow might look like.

There are currently numerous headline worries, from the lack of consumer demand in many global markets to inverted yield curves and chaotic political fights. Further issues vexing investors include high multiples in the market and the quality of earnings being reported.

But Geoff Castle, portfolio manager of the Pender Corporate Bond Fund, Penderfund Capital Management, said that, with such ingredients, it is understandable to see volatility in the market.

“From the eye of the storm, we are not surprised to see the sudden popularity of certain asset classes, including treasuries and other low-risk securities that deliver a consistent, low-risk income stream. But this, too, shall pass.

Our experience has been that our best purchases have been made in the midst of such storms, when the difference between a security being ‘no bid’ and having any bid at all was just little old us.”

Castle believes that looking past the present stormy weather, government rates will one day not be in freefall and that those panicked investors of mid-2019 will be contemplating the thin gruel of 1-handle yields and that what everyone is chasing “tomorrow” is exposure to the relatively few commodity producers that invested in production capacity when it was difficult and expensive to finance projects.

He said: “What we may be looking for tomorrow is drug companies that were able to develop and produce the next generation of therapies with new 14-year patent runways. And what we may be looking for tomorrow is securities that protect us from drawdowns related to rising interest rates. No investor will miss owning these today but tomorrow is another day.

“In approaching the less well bid parts of the credit market today, we give much thought to the staying power of cyclically exposed issuers.

“We look for robust balance sheets that give issuers the flexibility to manage through periods of closed ‘refi’ windows. We look for surplus assets, things to sell in a pinch … of course in combination with great credit yields and strong mid-cycle profitability levels that can comfortably support debt.”


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