KJ Harrison Insights –
Managing Risk & Returns
The KJH Insights monthly podcast on managing risk and returns provides an overview of the issues affecting the markets, and how we navigate those issues to build and protect our clients’ wealth. Host Sarah Bull, Partner & Portfolio Manager at KJ Harrison Investors, discusses with guest, KJH’s CEO Joel Clark, the impact of the COVID-19 vaccine on markets, the effect of a lower US$, the strength of Canada’s economy versus the US in 2021 and KJH’s top investment themes in this reflationary environment.
Sarah Bull, CIM®
With over 25 years of experience in the financial industry, Sarah specializes in managing investment portfolios for high and ultra-high net worth individuals and advising them on the complexities associated with their wealth. Sarah is dedicated to helping her clients – both individuals and families – with the transition through different stages of their lives and helping them to manage risk and secure their legacies with solid investment decisions.
Joel Clark, CFA
Joel has been CEO and Portfolio Manager at KJ Harrison Investors for 17 years where the business has grown from $80 million in AUM in 2001 to over $1 billion in AUM, where it stands today. Joel manages the investment portfolios, on a discretionary basis, for high net worth and ultra-high net worth individuals and families throughout Canada. Joel takes a holistic approach to managing portfolios and is intent that risk is well managed to secure his clients‘ financial goals and futures.
|Sarah||00:00:03||Hello and welcome. This is KJH Insights, a monthly podcast about managing risk and returns.|
|00:00:10||In each episode, we provide an in-depth look at the biggest issues affecting the markets and their impact on how we are building and protecting our clients’ wealth. I’m Sarah Bull, partner and portfolio manager at KJ Harrison Investors. I have Joel Clark, chief executive officer and portfolio manager, joining us today. Hi, Joel. How are you today?|
|Joel||How's it going, Sarah?|
|Sarah||Good. Thanks for joining us.|
|00:00:34||So, Joel, in our last episode, you were fairly positive on a vaccination and the election results were still highly contested and too close to call. A lot has changed since then. And we now have a divided government, a Democrat president and a Republican House, which the market really likes. And the vaccine seems to have incredible efficacy and is now getting rolled out in the UK. And corporate earnings are suggesting that businesses have been able to build revenue despite this extraordinary time. All of this seems quite bullish to me. Can you provide your perspective on the environment and the latest trends in the marketplace?|
|Joel||00:01:12||Sure. So it has been an absolutely crazy month. And I'd like to say the market has been turned on its head, but actually it's been turned on its feet for all good reasons. So I think the big news is the vaccination, obviously, and that's going to lead to a global synchronized recovery. The vaccination is very real. The efficacy is high, it's over 95 percent, and it's being rolled out as we speak. And that's going to give the economy the confidence it needs to reopen. At the same time, there's still a ton of fiscal and monetary stimulus globally, which is like putting gasoline on a fire. So I think the combination of the stimulus and the vaccine, which drives confidence, is going to light up a synchronized global recovery. And I think we're in the early innings of that. So that leads basically to three investable themes. The first is the reopening of the economy of all the things that were shut down. So think airlines, think cruise ships, casinos, live events. You know, we have we have a lot of people with pent-up demand and high savings levels because they actually haven't been spending any money. So we're really focused in that area of the market. And that's started to happen. I mean, Air Canada has gone in the last month and a bit from $15 to $26. So I think the market is starting to anticipate this reopening. The second is our reflation theme driven by a declining U.S. dollar because of all this stimulus. And so when the U.S. dollar falls, what does well? Commodities do really well. Emerging markets do really well. So natural gas, uranium, copper . Copper is on fire. Doctor Copper is always a leading indicator of the economy. And then lastly are Canadian banks, which have been a huge laggard up until a month ago. Bond yields have started to break out. When you think about what drives the success of a bank, it's the net interest margin. So the interest spread and credit losses. So I think credit losses are behind us. They've taken their reserves and interest rates are starting to rise. So the Canadian banks, which Canadian investors just love, it's 20 percent of the Canadian index. It's an oligopoly. They're very well regulated. They're safe. And, you know, next year they might, OSFI might even allow them to start to increase those very high and juicy dividends once again. So those are the three investable themes that really relate to that synchronized global recovery story.|
|Sarah||00:04:08||So thanks, I can see why Canadian banks would be so attractive, especially given the ultra-low rate environment we're in. You know, all of that sounded fairly optimistic. So on the other side of things, I'm starting to hear rumblings, S&P 3700, that the market's overextended or overbought. Do you worry about that at all?|
|Joel||00:04:30||Yeah, I think from a valuation perspective, there are clearly pockets that are overvalued.|
|00:04:36||A lot of the stay-at-home stocks, a lot of the technology stocks. But you'll notice none of those are in the three themes that I talked about. Those are the areas of the market from a valuation perspective that are actually cheap. And so although the broad market is expensive, I think it's going to be an active stock picker’s market. And you want to focus on some of these lagging areas. In terms of short-term momentum, I think it's been overheated for probably a month now. So you'll get a bit of a check back likely in January or February. But I think the first six months of next year, like I said, is going to be blazing hot from a recovery perspective.|
|Sarah||00:05:19||And what do you think of the IPO frenzy right now? And is that part of what we often see at this time is fear of missing out or a Santa Claus rally? Do you think all of that, the IPO frenzy is related to that?|
|Joel||00:05:32||Yeah, I think IPOs you always have to watch. Typically, they get rolled out when investor enthusiasm is hot. We don't tend to invest in many of those. It can be a signpost, but it can also go on for a few months, right. So it's not something that we really play in. So it's somewhat irrelevant to our positioning.|
|Sarah||00:05:54||You talked about Canadian banks. What are your thoughts on Canada versus the U.S.?|
|Joel||00:05:58||You know, markets tend to go in cycles, in 10-year cycles. So clearly, we've had the S&P outperform the TSX by a mile for a decade. A lot of it is attributed to those large tech stocks. And so if you go back to this reflation theme, anti-U.S. dollar theme, Canada tends to do very well because of cyclicals, commodities, basic materials. So my basic expectation for next year is Canada, for the first time in a while, outperforms the U.S.|
|Sarah||00:06:33||Thanks, Joel, for making sense of the markets as we head into the home stretch of 2020. And thank you to our listeners. We invite you to listen to us every month as we talk about the outlook for markets. I am Sarah Bull. For more insights from our team or to subscribe to this podcast, visit our website at KJHarrison.com.|
|00:06:52||Happy holidays, everyone. We look forward to a return to normalization in 2021. Stay healthy until then.|
|Disclaimer||00:07:02||This podcast is produced solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy a security. The information herein is based on sources we believe to be reliable, but is not guaranteed by us and does not purport to be a complete statement or summary of the available data. Any opinions expressed herein are statements of our judgment on the recording date and are subject to change without notice. Any unauthorized use or disclosure is prohibited. Receipt and/or review of this presentation constitutes your agreement not to reproduce, display, modify, distribute, transmit or disclose to others the content, opinions, conclusions or information contained in this podcast.|
Episode 1 – US Election
Host Sarah Bull discussed the impact of the US election on the markets with KJH CEO Joel Clark, as well as the “big picture” and the tug-of-war between reflationary policies vs deflationary pressures, and how big companies are getting bigger and better.
Coming soon in January 2021