Now we’re really underweight Canada, says PM

Top advisor tells WP he’s ready to redeploy capital but is avoiding Canadian equities in the long-term

Now we’re really underweight Canada, says PM

In the weeks before the coronavirus-driven market downturn began, Rob Tétrault started getting out of equities.

The Winnipeg-based portfolio manager at Tétrault Wealth Advisory Group and Branch Manager at Canaccord Genuity Wealth Management told WP that he knew market shocks were overdue when Iran shot a plane out of the sky and markets went up 200 points. He started divesting from emerging markets, and then started pulling out of Canadian equities with the idea that Canada is poorly-positioned for a shock like this.

“We felt that the Canadian market is just not poised to attract any investments of any kind,” Tétrault said, “We were concerned that there might be a downturn in the oil patch, which would then lead to unemployment in other sectors in Alberta, which could maybe lead to a recession in Canada. We’ve been underweight Canada for a while, but now we’re really underweight Canada.”

Tétrault is ready to redeploy capital now, and he’s focusing it on the sector he held on to during the run-up to this downturn: U.S. large-cap equities.

He explained that these companies with strong earnings performance, good balance sheets, and the strength of the overall U.S. business climate made these companies better suited to a rebound. Tétrault is buying some Canadian financials as well, which he thinks are a value buy despite their exposure to oil-patch risk.

He said that the best equities to buy now are in companies with positive cashflow and low debt. Companies that don’t need access to public capital to survive and can boast recession-proof earnings will deliver. A savvy advisor can find value in large-cap U.S. names set for a rebound.

The Saudi-Russian oil price conflict has Tétrault most worried. He thinks the resulting price drop might be the death knell of the oil patch.

“I know a lot of those companies can't survive at $30 a barrel,” He said. “Do they turn the taps off? Do they start laying off people? I don't know what the answer is to that but if oil doesn't move and if there's no intervention, I think we're going to go into a Canadian recession.”

In the longer term, Tétrault doesn’t see much hope in the Canadian equity market. Advisors need greater diversity in their clients’ portfolios over the next decade. Within Canada, Tétrault sees only opportunity in the banks and he thinks investors need to shift their asset allocation to the U.S. and other global markets.

It’s his view that now is the time to strike. Investors can start to sell some of their allocations in fixed income, alts, private equity, or real estate and deploy that capital back in the equity markets Tétrault thinks will deliver.

“We had always said at 20 per cent [down] we're going back in,” he said. “At 25 per cent we're all in with our side capital.”