What are some of the smart moves to be made in the markets in these unpredictable times? We asked President and CIO of Middlefield Capital Corporation, Dean Orrico, for his suggestions
The economy has now been in recovery mode for around eight years, one of the longer recovery periods for some time. Whereas in a regular recovery, annual GDP growth could be expected to be in the 3 – 4% range, Canada is stuck firmly in the 1 – 2% GDP growth range. It’s fair to say it’s not been the typical economic recovery.
So, where exactly is Canada in its recovery cycle and what are some of the smart moves to be made in the markets in these unpredictable times? We asked President and CIO of Middlefield Capital Corporation, Dean Orrico, to give us his personal view on these two pressing questions.
“I think we’re beyond the midway point of this economic recovery but we still have some way to go,” Orrico says. “In Canada, we’re still in relatively low energy and resource markets, and that has spillover effects on the balance of Canadian economic activity… we probably won’t see a rate increase in Canada until late 2017 at the earliest, but it will probably be 2018.”
Orrico does think that the Canadian economy is finally adjusting to the challenges caused by the oil prices of the past two years. “We’re starting to see a pickup in the service sector and we also want to see a pickup in the goods sector,” he says. “We did just put up pretty good jobs numbers in Canada (Friday 4th), which defeated most peoples’ expectations. Looking behind the numbers, the results are encouraging – it doesn’t seem to be a ‘one off’ type of situation.”
In what is expected to be a relatively low growth, low interest rate environment for some time, where should investors be placing their money? “At least over the next 6 – 9 months, I think you want to be positioned in more defensive sectors,” Orrico says. “With the pullback we’ve seen in the past month or so, some defensive sector options are more attractive from a valuation perspective. We still like REITs and infrastructure issuers, whether that’s pipelines or power generators.”
Orrico is also seeing some attractive opportunities in healthcare. “Given the political rhetoric regarding drug pricing, there has been a pullback in healthcare stocks, which is making those types of company attractive investments because they’re trading at a discount,” Orrico says. “We also have larger weights - not specifically over weights - in some of the US financials; we think they are still attractively valued. Consumer discretionary and consumer durables are areas where we are underweight right now.”
Orrico encourages advisors to focus on products that are delivering superior performance on a risk adjusted basis at a low cost. Increasingly, advisors are looking to ETFs, which do quite well when the market is on the up. “But when the market is range bound or going down, like it has in the past four weeks, those ETFs typically underperform,” Orrico says. “An active manager, who is on top of the markets, can react to some of the volatility and make appropriate changes to dampen the risk we’ve seen in the past weeks.”
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