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Reprinted with permission from globeandmail.com – February 3, 2010
Got a question on
where to invest?
CI’s Eric Bushell, fund manager of the year for 2009, takes your questions
Globe and Mail Update
Eric Bushell is cautious about what this year might bring
for the stock market. He’s avoiding cyclicals and base
metals. He likes banks and oil stocks, as well as telecom,
real estate investment trusts, health care and the highyield debt market.
He also holds foreign stocks in his Canadian equity fund.
The $3.3-billion CI Signature Select Canadian Fund
made an average annual return of 10.9 per cent for the 10
years ending Nov. 30, compared with 6.5 per cent for the
S&P/TSX total return index.
Three of Mr. Bushell’s stock picks are:
Talisman Energy Inc. TLM-T
Manulife Financial Corp. MFC-T
Roche Holding AG
Sonali Verma, Globe Investor: Hello, everyone, thanks for
joining us. We’ll be starting our discussion shortly.
Michael Kennedy writes: I would like to know your
thoughts on South American economies and if you see
opportunities there for the long term, and where do you
see these opportunities.
Eric Bushell: OK Michael, the only Latam countries
with sufficient populations and GDP size to underpin an
investable equity market are Mexico and Brazil. Of the
two, Brazil has a more dynamic capital market. They have
made many improvements to the soundness of their equity
market over the last decade. The combination of good
demographics, agricultural and energy riches and true
commercial instinct make Brazil the better investment
jurisdiction. At this point there is a near euphoria for
BRIC countries, and the winning of the Olympics capped
that off for Brazil.
Our investments to date in Brazil have been in banking,
property, beverages, rail, agriculture and mining ventures.
Names such as American Logistica, Bunge, Ambev,
Santander and BR malls.
A reader identified as Curious Investor writes: It looks like
about a quarter of your CI Signature Select Canadian
fund’s holdings are in Europe and a quarter in the U.S.
Why did you decide on that?
Eric Bushell: The main point to for me to make here is that
the Canadian equity market continues to shrink. In relation,
that is, to the number of large cap quality companies listed
here. Consider that all the major mining franchises have
been bought out – Alcan, Inco, Noranda, Falconbridge.
What’s left in Canada is not sufficiently diversified to
build a fund around. We advocated for the removal of
the foreign property constraint which was finally done by
the Dept. of Finance in 2005. Since that time our foreign
exposure has climbed further. The actual domicile of the
companies has relatively little bearing on our investment
decision, in today’s globalized economy. Today, however,
consideration of tax policy changes in different countries
does bring this factor back into view.
Bond Guy writes: Everyone’s talking about a crash in highyielding bonds. Your take?
Compliments of
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Reprinted with permission from globeandmail.com – February 3, 2010
Eric Bushell: No crash expected here.
With policy rates staying low, investors looking for higher
yields will drive more inflows into high-yield funds. That
said, our view is that the capital gain story for high yield
has played out and 2010 offers coupon returns only.
Furthermore, there is a supply wave coming. Specifically,
the refinancing of lots of maturing LBO bank debt will
keep high-yield bond issuance elevated. This will likely
keep spreads attractive.
SJ writes: Thanks for taking my question. Which banks do
you like and why? U.S. vs Canadian – is the gap closing?
How about TD?
Eric Bushell: U.S. banks continue to trade at attractive
discounts to Canadian peers on a price to tangible equity
basis. This gap should close somewhat as their loan
losses fade in 2010 and 2011. The earnings power of the
large U.S. bank franchises will become clear, providing
considerable upside for the shares. Our favorite is Bank
of America.
holders will be attracting investment, in my view. Our
main positions are in Canadian Natural and Suncor and
Imperial Oil.
CN asks: Do you have an outlook for the Canadian dollar?
Eric Bushell: The Canadian dollar and the Canadian
bond market will stay on the rich side of fair value for
the foreseeable future. The combination of a relatively
strong fiscal position and the role of commodities in our
economy will support the dollar. If the purchasing power
parity with the U.S. dollar is roughly 85 cents, I expect we
could deviate as much as 15 cents from that and reach
parity later this year. We lower our U.S. dollar hedges
whenever the CAD approaches parity.
Our hedges are currently at 50 per cent of U.S. dollar
exposure, with a bias to increasing that ratio as the CAD
stumbles here.
Heather Jeffreys asks: What is your outlook for U.S. and
Canadian stocks? How much longer will the rally continue?
TD has been beaten up on its U.S. exposure and concerns
about the impact of Basel 3 on their capital adequacy.
The Canadian franchise is in great shape. At 9.5x price to
earnings, we think it represents good value.
Eric Bushell: In 2010, we are facing the consequences of the
financial crisis: Rising taxes, rising interest rates, financial
re-regulation, etc. The losses were transferred from banking
systems to the government, which is causing new strains.
Joanne Keates writes: What do you think of BCE’s earnings
today? Should I hang on to it, maybe buy more?
That said, I am optimistic that the recovery is taking hold
and that profit expansions will support higher equity
markets by year end. Our asset mix in the balanced funds is
overweight equities in support of this view.
Eric Bushell: The 2009 recovery in corporate bond prices
means that yields are much lower. In 2010 we expect
investors to take on more risk and accumulate highyielding common shares. This will be a supportive year
for telephone company shares. Furthermore, all investors
need to hedge their bets on the China and emerging
market-sensitive exposures.
BCE has made investments in a new wireless network,
which should improve their competitive position as
consumers adopt more smartphones. Financially, the
company is performing well against a low-growth backdrop.
M. Gavotte asks: If I could pick just one oilsands play,
which one should it be?
Eric Bushell: I am not going to recommend a specific
name. Global investors and oil companies looking for
long-life energy reserves will come shopping in Canada.
This pattern has only just begun. All large oilsand lease
G. Lieberman writes: What’s your favourite sector in
equities?
Eric Bushell: I like health care. It’s out of favour, cheap,
pays big dividends and is less correlated to the global
economy.
Sonali Verma, Globe Investor: Many thanks for giving us so
much of your time and sharing your expertise with us. Is
there anything you would like to say before we conclude
today’s discussion?
Compliments of
Article Reprint
Reprinted with permission from globeandmail.com – February 3, 2010
Eric Bushell: Nope. Thanks for having me on.
Sonali Verma, Globe Investor: And thanks to everyone who
joined us today.
The Eric Bushell Bio
Reprinted from Globe and Mail, in the “Funds” section.
Eric Bushell is senior vice-president of portfolio
management and chief investment officer of Signature
Global Advisors, a division of CI Investments. He
has 16 years of investment industry experience.
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As chief investment officer, Mr. Bushell leads a team of
23 investment professionals managing approximately
$23-billion. He is lead portfolio manager of several
funds, including Signature Select Canadian Fund.
Mr. Bushell began his career as an equity analyst and
equity trader at BPI Mutual Funds before becoming
a portfolio manager at the firm. He joined CI’s
Signature team in 1999 when BPI became part of CI
Investments. He was named chief investment officer
in 2002. He holds the Chartered Financial Analyst
(CFA) designation and a BA from Queen’s University.
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