The best way to invest is to branch out from top stocks and be an all-cap value manager.
So says Suzann Pennington, head of Canadian Equities at CIBC Asset Management. She manages the Renaissance Canadian All-Cap Equity Fund and co-manages the Renaissance Canadian Balanced Fund.
While the top 60-to-100 stocks offer good dividend yields, she says she prefers to draw on a larger universe of stocks to get proper diversification.
Pennington suggests going down to the $300-million market cap, which provides 400 stocks to choose from on the TSX.
The main benefits of considering this market are:
- It allows you to stay fully invested within your discipline because you've got more stocks to choose from and analyze;
- Small and mid caps tend to be less covered by the market, so there are more opportunities and more mispriced securities;
- It gives you more diversification.
One of Pennington's largest holdings is ShawCor, a Mississauga, Ont.-based company that coats oil pipes, gas lines and water pipes all over the globe. Despite that success, she says most investors have never heard of it.
And, in her view, there's only a small window of opportunity to gain access to the global natural gas market. If Canada misses this window, they'll be left with only the North American market, meaning lower natural gas prices for Canadian producers.
Pennington urges Canada to form global deals with natural gas buyers in Asia and Europe, and says, "We have to have access to capital if we're going to build large liquefaction plants," which are necessary to compete.
She notes the government needs to develop clearer guidelines so global players can bid for Canadian companies, citing the confusion that exists with Petronas Canada's takeover offer for Progress Energy Resources Corp. and CNOOC's bid for Nexen.
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"Certain companies are going to be worth more with these global contracts," she says. "Whether they do it through joint ventures or direct acquisitions, these companies are going to be worth more because they have access to capital and, in some cases, access to expertise."