Canadian investors tend to have a home-country bias, but this country accounts for less than 4 per cent of the world’s capital markets.
That’s why it’s prudent to diversify portfolios to mitigate risk – be it through securities in different geographies, industry sectors or asset classes.
We asked managers of three 2021 Lipper Award-winning foreign equity funds where they see opportunities:
CI Global Infrastructure Fund
Infrastructure plays will benefit from a growing interest by private institutional investors, and recent passage of the U.S. infrastructure bill, says Kevin McSweeney, portfolio manager with Toronto-based CI Global Asset Management.
Institutional investors, including insurers, pension funds and private equity, are attracted to the infrastructure sector because “they need to deploy capital into stable cash flows that can beat the rate of inflation,” he says.
“You are also going to see more private takeouts of infrastructure companies, which is very positive for the space,” adds Mr. McSweeney, who oversees the CI Global Infrastructure Fund with co-manager Massimo Bonansinga.
His portfolio owns shares of Australian-based Sydney Airport Ltd., which recently agreed to a US$17-billion takeover offer at a hefty premium from Sydney Aviation Alliance, an infrastructure investment group.
And his fund could also gain from the US$1-trillion infrastructure plan, which provides funding for everything from roads and bridges to expanded broadband and power-grid upgrades for clean-energy transmission. Utilities, such as Nextera Energy Inc., Boralex Inc. and Iberdrola SA, could benefit, he says.
The CI fund focuses on pipelines, utilities, telecommunications and transportation. “We are bullish on energy infrastructure now because of higher oil and gas prices,” and longer-term on telecom, Mr. McSweeney says.
He likes Hess Midstream Partners LP, a pipeline operator in North Dakota’s Bakken region. Its business model offers cash-flow visibility over three years, while the 8-per-cent dividend yield of this “undervalued stock” is fully funded.
He also favours cellphone tower specialist SBA Communications Corp., which will benefit from U.S. telecom companies building more data capacity. SBA has also been raising dividends and buying back shares.
Infrastructure plays, however, are not immune when stock markets tumble, he says. “They will go down too, but not as far as the overall stock market.”
NEI Emerging Markets Fund
The sell-off in Chinese stocks triggered by a year-long regulatory crackdown has offered compelling opportunities in certain sectors, says Dara White, a portfolio manager with Boston-based Columbia Threadneedle Investments.
“We have been through a lot of regulation, and we are getting closer to the end of it,” suggests Mr. White, who is global head of emerging market equities and oversees NEI Emerging Markets Fund.
Chinese equities have risen to 30 per cent of the fund recently but are still under the 34 per cent in the MSCI Emerging Markets Index, Mr. White says. When picking stocks, he also uses environment, social and governance (ESG) criteria.
He has been adding to his position in Li-Ning Co., a Chinese sportswear company founded by former Olympic gymnast Li Ning. It has been winning market share from some Western peers amid a localization push, he says.
He also likes Wuxi Biologics (Cayman) Inc., a contract research and manufacturing firm benefiting from biotech companies outsourcing their research. It can provide lower-cost services and get drugs to market faster than its global peers, he adds.
China’s regulatory crackdown has ranged from targeting technology giants, such as Alibaba Group Holding Ltd., for antitrust abuses, to for-profit tutoring firms that benefit well-off families.
Some investors see China’s talk of “common prosperity” to narrow the wealth gap as moving back to communism, but “that is not our view,” he says. Rather, it aims to create a larger middle class, which is a “good backdrop for the equity markets.”
Although emerging markets are often seen as a reflationary play driven by sectors such as energy and commodities, it’s really a structural growth story dominated by sectors such as communication services, consumer discretionary, information technology and health care, he says.
“It’s a much higher-quality universe,” he says. E-commerce firm Sea Ltd., based in Singapore, has done a “phenomenal job penetrating southeast Asia and now Brazil,” while Russian online retailer Ozon is also gaining market share.
Invesco Europlus Fund
Many smaller-company European stocks offer more attractive opportunities given the strong performance of larger firms found in benchmark indexes, says Matt Peden, a senior portfolio manager with Atlanta-based Invesco Advisers Inc.
“There have been very strong flows into passive vehicles dominated by large companies so that smaller-cap companies could potentially be overlooked,” says Mr. Peden, who oversees the Invesco Europlus Fund.
His high-conviction portfolio holds 21 names in developed and emerging Europe. He focuses on high-quality growth companies with competitive advantages, and that also trade at reasonable prices.
The portfolio, which is 50 per cent invested in smaller-cap names versus 30 per cent to 40 per cent historically, reflects the better opportunities in this space and strong performance of certain names, he says.
Eckert & Ziegler Strahlen-und Medizintechnik AG, a German-based provider of isotope technology for medical, scientific and industrial use, has performed strongly and was the fund’s top weighting at 11.7 per cent as of Oct. 31.
Mr. Peden also favours Scout24 SE, a German-based company offering digital services to the real estate sector. In addition to listings, it provides tools to agents to promote their brand and to consumers to help research homes.
Clarkson PLC, a London-based provider of shipping services, is also a top holding. It’s the No. 1 shipbroker worldwide and benefits from a shortage of capacity relative to demand in a post-COVID-19 economic recovery, he says.
Although the fund holds about 13 per cent in cash, that’s lower than 20 per cent in some years, he says. That’s partly due to the pandemic-induced volatility that provided more opportunities.
With the market shift from growth to value stocks starting in the fall of 2020, “we added new positions and to existing holdings,” he adds. “We tend to avoid value-oriented businesses because they don’t fit with our practice and philosophy.”
For the full list of 2021 Lipper Awards individual winners click here and for the group winners click here.
