William Aldridge on Canada

(Runtime: 7 min, 37 sec)

Text transcript

Speaker 1:

This podcast is for informational purposes only. Information relating to investment approaches or individual investments should not be construed as advice or endorsement. Listeners should seek professional advice for their situation.

Matthew Schnurr:

Welcome to the MacKenzie Investments podcast. My name is Matthew Schnurr and I’m delighted to be here with Will Aldridge. Will leads our Canadian equity mandate. Will, welcome to the podcast.

William Aldridge:

Thanks a lot, Matt. Glad to be here.

Matthew Schnurr:

I’m glad you’re here as well, particularly timely. The more and more that I read about Canada in the press, it seems like Canada is a bullish place for many forecasters. Before we get into your views on Canada specifically, I’d love to start the conversation with how you approach investing in general.

William Aldridge:

Yeah, and you certainly can’t talk about how we and my team approach investing without talking about Canada. We’re a hundred percent focused on Canada. As you know, Matt, Canada is a somewhat unique environment to try to find investments in the global landscape. There’s a couple of markets that are similar to Canada, but really it’s a pretty unique place.

William Aldridge:

I spent all my career in Canada looking at Canadian names, meeting with Canadian management teams and the same can be said for my team. We’re bringing a lot of experience into that. Trying to find ideas in Canada and approaching it with that sort of Canadian lens. Just thinking about the resource heavy exposure in the TSX. Obviously financial is a big weight as well.

William Aldridge:

What that means really as a result is you need to think about things a little bit differently. We take commodities and sort of forecasting into consideration, but Canada’s a pretty unique place. We can talk about the opportunity in Canada, how it looks today. People tend to think about valuation and put that lens on things, Canada will always look statistically a little bit cheaper than a place like the US. We can get into that a little bit.

William Aldridge:

It’s an interesting dynamic in Canada. Certainly we need to think about what it means to try to come up with ideas and it’s a pretty small landscape as well. We build a diversified portfolio and we just try to think about where the best opportunities lie in each sector, but some of those sectors can be pretty skinny as you know.

Matthew Schnurr:

Of course. Yeah, Canada, very narrow market dominated by resources and financials as you’ve pointed out. Often investors describe themselves somewhere on the continuum from value to growth. Those words can be a little bit ambiguous for sure and potentially in need of refinement, particularly with a market like Canada. Where would you put yourself on that continuum and how do you think about it when approaching the Canadian markets?

William Aldridge:

Yeah, my training really was with a value sort of bias towards it. When I came into the business onto the buy side, I started working with a deep value investor, Bob Tatersall, who you will have worked with in the past as well, Matt.

Matthew Schnurr:

Sure, yes.

William Aldridge:

Bob very much deep value, very focused on price to book. Even just in my innate sense, in my soul and my spirit, I’ve always felt an attraction to that and attraction to valuation generally. That’s how I trained myself as well. Before starting working with Bob. All my reading was really based around valuation things like Buffet and Peter Lynch on the growth side, but still very much valuation focused. It’s easy sometimes for us to bucket investors on the value of the growth spectrum, but really for us, I think what we think more about is valuation in general and trying to find statistically attractive opportunities relative to what the market is telling us this the share should be worth.

William Aldridge:

We’re certainly not afraid to own what you call growth year type names. They may trade at higher multiples, but really for us it’s more about valuation than value or growth. Because we have such a focus on valuation, what that tends to lead to is our portfolio does tend to look a little bit cheaper than the benchmark. We’re just so focused on it. That’s where we want put the capital. We want to put the capital to where we see the best returns to intrinsic value and we’re not chasing momentum. We’re not chasing names that are showing higher growth, continually higher growth and accelerating growth. Those aren’t typically the names that we’re attracted to.

William Aldridge:

It certainly can make it a bit challenging in markets like this where you’re seeing this migration towards quality and the valuation dynamics around those types of names tend to be a little bit higher. On the spectrum, absolutely tilted towards value and I think that’s probably the safest and easiest way to think about how we manage the portfolios is kind of a value tilt to our perspective, what we bring to the table.

Matthew Schnurr:

That’s great. Maybe we can get move now into the present time in Canada. As I had mentioned at the start, many forecasters are relatively bullish on Canada after being fairly bearish on the nation for the past decade or so. Do you share their optimism and I guess to tie in your most recent comment about more quality bent, I think that many people don’t think of Canada as a particularly high quality market. What are you doing right now to counter that or to incorporate that in your portfolio?

William Aldridge:

Yeah, I think why Canada’s working today is certainly more of a resource exposure than anything else. Obviously energy being a pretty high weight. Not as high as it once was. I mean, we were north of a third exposure to energy in the TSX at its high. Now we’re half that, but we’re coming off the bottom as well. We got as low as 10% and as high as a third and now we’re sort of 16, 17% in energy. Yeah, that’s the big reason why Canada’s working today. Obviously the unfortunate war in Ukraine there is having a big impact on commodities generally.

William Aldridge:

Even prior to that though, I mean, we were seeing this shift towards value and then Canada was outperforming because of that bias as well. That more value tilted, again, financials was really driving things towards the beginning of the year.

William Aldridge:

It all really comes back to what we were talking about at the outset. Really the mix. What we’re talking about in Canada is the mix. Obviously technology being extremely weak here year to date as well. Not much exposure to technology and certainly much less. Today with Shopify coming off as hard as it has.

William Aldridge:

I think it does come down to the mix and I sort of stray and pull back from talking collectively about a market and just saying, oh, Canada’s the better place to be than the US. You’re always going to find in any sort of opportunity you’re looking at, there’s little pockets. You need to think about pockets of opportunity as opposed to a collective hole and say Canada’s better than the US or value’s better than growth. It’s really not how we think about investing. We’re always trying to uncover intrinsic value wherever it presents itself and then taking consideration of the dynamics and the overall market as well.

William Aldridge:

When markets are really expensive, that will lead us to behave in a certain way. When markets are really cheap, it’ll lead us to behave in a certain way. We’re always trying to hone our process and evolve and think about what the best opportunities are at any point in time and not necessarily sticking to any particular discipline and saying, I’ll only buy stocks that look like this or I’ll only buy these sectors and I’ll never buy these sectors. It’s not the way we think about things. We’re always trying to find those little opportunities to generate off of our clients.