Firm: Heward Investment Management
Position: Portfolio manager
Years in wealth management: 42
Years as a portfolio manager: 40
There aren't many PMs in Canada who can match Maurice Conti's level of experience. With four decades as a PM behind him, Conti observed markets rise and fall on countless occasions and has seen that this isn't always dictated by fundamentals.
“One of our frustrations centres on how markets – and individual stocks – can change direction so quickly,” he says. “Most of it starts with hedge funds or short-term traders both buying and selling. An example is how there were record numbers of shorts on oil, driving the price down in 2016 to a level which was not justified, and suddenly recovering as investors suddenly went long again.”
That particular collapse was especially painful for Canada’s oil patch. It’s a characteristic of the investment industry that Conti doesn’t find particularly attractive.
“While fundamentals justify some of the market moves, the extreme moves that we see today are magnified by these investors,” he says. “Eventually these type of moves cause individual investors to panic, resulting in further price spikes, whereupon these pros actually reverse their trades. The little guy loses out.”
Given the increased volatility in the markets, investing can be a risky proposition in 2018. That volatility is something Conti and his team foresaw at the end of last year, and they rebalanced their portfolios accordingly.
“Global trade frictions have increased, and together with rising US Treasury yields and mixed data flows, have somewhat shattered the complacency that coddled markets”
“Global markets have entered a new era of volatility, and the first quarter of 2018 has seen a whirlwind of economic and political news and development,” he says. “Global trade frictions have increased, and together with rising US Treasury yields and mixed data flows, have somewhat shattered the complacency that coddles markets."
While those factors could persuade an investors to take a defensive position, Conti hasn’t wavered in his strategy. Corrections certainly aren’t new to him, which is why he is adopting a cautious but optimistic approach.
“We reiterated to our clients in our year-end view that a market correction was imminent and would prove to be a temporary pause in an otherwise still positive – if late-cycle – global growth trajectory,” he says. “While volatility is likely to remain elevated near term, and the recent market sell-off has caused sentiment and valuations to become less exuberant, global earnings growth has turned strongly positive and appears highly synchronized.”
In response, Conti reduced his weighting in equities late last year – a temporary move until the right opportunities present themselves.
"While we continue to favour late-cycle sectors, which emphasis on technology and industrials," he says, "stock selection and price discipline are now paramount, and will also drive geographical diversification. We remain convinced that the global economy is in the grip of synchronized growth, albeit decelerating, and markets will continue to do well."
Like many of the portfolio managers featured here, Conti believes those opportunities, when they arise, likely won’t be in the domestic market.
“The Canadian market continues to be hurt by its large exposure to the energy sector,” he says. “Until we find a way to export more heavy oil and reduce the Western Canada Select differentials, the energy sector will be a bit of an anchor.”
The always-volatile energy sector is one concern for Canadian investors, but it’s far from the only one. “NAFTA is a concern right now and will overhang the market until something is worked out,” Conti says. “President Trump talks a tough game, but recent developments, such as the exemption to tariffs on Canadian steel and aluminum and the appointment of pro-Canada/anti-tariff economic advisor Larry Kudlow, could play out well for Canada.”