Paul Gardner, CFA

Interest rate hikes. Part of the cocktail of a poor market. 10-year in the US just broke 3.60%, and that's never good for valuation of equity markets. Compounded with weak European and Japanese foreign exchange, it makes it hard for trade to flourish, as there are such distortions in the FX market that make planning difficult. War in Ukraine, supply chain issues, after-effects of Covid. Never great for the stock market to have all these unknowns.

Asset allocation right now. Tough the last few years, as the bond market didn't give you, really, any rate of return. Bonds are now safe to enter. Despite roaring inflation, we've discounted quite a bit of it doing about 2/3 of the tightening. The yield curve's inverting, so the long end is outperforming the short end, as central banks can't influence the long end. Even at 6%, you're losing money on an inflation-adjusted basis, but the bond market is poised to do better in 2023-24 as a recession most probably hits. Central banks will probably pivot and lower rates in the second half of 2023.

Inverted rates at the long end mean the market's telling you high probability of a recession. Not a bad entry point to dip your toe in. Curve might re-steepen temporarily, if inflation is stickier. Partial position now; if he had $1, he'd put 50 cents in right now.

Diversified away from MG, reducing exposure to 25-30%. Problem when assets are outside North America. European headwinds, foreign exchange, slowing economy. Underperformed this year. Better industrial plays out there.

Office, residential, industrial. Not focused enough for him. Good numbers last quarter. Will probably reinstate dividend soon. It's fine, but not one of his favourites.

Great infrastructure play. Huge backlog. You can feel governments starting to spend. Biggest problems are wage increases, input costs, and labour shortages. Many contracts are fixed. Margins compressed. Stay away.

Hard to own insurance, as there are so many moving parts. Insurance arm in Asia starting to slow down. Cheap valuation. Unclear what motivation is to move higher. Not a fan, or of any insurance. Benefit of rising rates offset by poor equity markets.

He's lightened up on financials. Valuations are compelling, but margin and loan growth will be stagnant. Banks don't do well in recessions. Large loan book in Canada, without access to the US. It's fine, but his preference is TD or RY.

Banks. He's lightened up on financials. Valuations are compelling, but margin and loan growth will be stagnant. Banks don't do well in recessions. No tailwinds right now. The only thing that saves them is that Canadian banks are trading 1.5x book, PEs are 8x. Cheap. Cousins in US are even cheaper, but they're struggling too. TD has expanded its NIM in the US, so last quarter they benefited the most out of all the banks. His preferences are TD and RY, as they're best in class.

(A Top Pick Jan 12/21, Down 15%) Pandemic pushed valuation up, it got too expensive, he sold. Didn't like share buybacks at high levels.

(A Top Pick Jan 12/21, Up 40%) Bought in depths of pandemic, sold as it became fully valued. Better apartment REIT opportunities elsewhere. Loves management, they're long-term value creators.

(A Top Pick Jan 12/21, Up 48%) Great-managed REIT. Taken out.

Its assets are a fantastic way to earn on real estate. Geographically diversified with multiple management teams and dynamics, so it's hard to wrap your head around. Outperformed relative to the sector. He prefers a simpler theme.

REITs in this environment. Doesn't like office or retail. Likes apartments and industrial. Played this theme through the pandemic, and though that idea's a bit tired, it still has legs. As markets get more uneasy, you want to grab the most defensive assets you can. Apartments and industrial are defensive, but have the dynamics of expansion, so there are tailwinds.