European contagion contained

But the longer-term economic outlook for the United States is "healthier than that of Europe," he says. There is a structural shift in international commerce to the Asia-Pacific region away from Europe. "The U.S. economy will participate in this."

As CIO of Signature Global Advisors, a separate portfolio-management group under the CI Investments Inc. umbrella, Bushell analyzes macroeconomic trends and developments in financial markets around the world, so as to shape his investment strategy for a wide range of portfolios. His team includes sector-focused equity portfolio managers and fixed-income specialists.

A recent positive sign for the global capital markets, he says, is that the latest aftershocks from the European banking system's difficulties did not assail the U.S. economy, the U.S. banks or the quality of U.S. credits. "These held in, indicating that there are now limits to the European contagion."

Eric Bushell

Bushell cautions that the pace of deleveraging under way by mainly the European banks needs to be carefully monitored. This continues to pose a risk to global financial markets, he says. "The European banks are, for example, the main foreign lenders to the emerging economies, so their retreat needs to be orderly."

Furthermore, says Bushell, these lenders are re-pricing their loans higher to preserve their returns in the face of shrinking asset bases. This is having a negative impact on smaller businesses that are more dependent on bank financing than their bigger counterparts, he notes. "Expect to see a rise in takeovers of and mergers between smaller businesses."

On the eurozone's recent financial challenges, Bushell says that a full-fledged European banking crisis was averted earlier this year by the actions of the European Central Bank. The ECB has undertaken to lend one trillion euros to the banks in the form of three-year loans, he says. "These are bridge loans for the banks in the absence of private-market funding."

The Spanish banking system is at the epicentre of the European banking problem, says Bushell. These banks are working their way through the collapse of a major housing bubble in Spain. "The banks are building equity through retained earnings and deleveraging their balance sheets."

Some Spanish banks are in better shape than others, says Bushell. Big banks, such as Banco Santander SA and Banco Bilbao Vizcaya Argentaria S.A. (BBVA), offer investors an indirect play on Latin American markets and Mexico, he notes. The two banks are both major players in Mexico, he says. "Santander is expected to take its Mexican unit public this year, as a means of surfacing value."

European bank stocks are "extraordinarily cheap, as investors have abandoned them," says Bushell. These stocks trade at 30% of tangible equity (book value minus goodwill), he notes. The U.S. banks range from 0.5 to 1.3 times tangible equity. By contrast, the Canadian banks are at 2.5 times. "This ratio is expensive relative to the European and U.S. banks, but in line with historic valuations for the Canadian banks."

Bushell notes that he and his team have been "inching into" European bank stocks including those of Standander and BBVA. "We have a big weight in U.S. banks and continue to see Canadian banks as offering safe low double-digit total returns per annum over the next few years." The U.S. banks have greater upside, he adds.

Signature Global Advisors manages about $35 billion across all asset classes. In addition to his CIO role, Bushell is the lead manager of CI Signature Select Canadian  , which has assets of $2.5 billion at the end of March. He is also lead manager of : CI Signature Select Canadian Corporate Class, a similar fund, which had assets of $1.6 billion at the end of March.

The Select Canadian portfolio has 45% in foreign content and around 100 names. Bushell says that he is emphasizing those areas that reflect the application of human capital rather than resource plays. So, for example, the portfolio has overweight positions in the health-care sector, technology and consumer staples.

A Canadian health-care stock with global reach that Bushell thinks has good upside is Nordion Inc. NDN. "It is in the field of nuclear medicine." Nordion is one of the biggest producers of medical isotopes in the world, he says. Its main therapies product is one that is used for the treatment of inoperable liver cancer. "There is big potential for this drug."

Bushell has a modest position in battered Research in Motion Ltd. RIM. "It has cash and patents that are worth a considerable amount," he says. In addition, the stock, "at these levels, provides an option on a potential turnaround in the company."

In the consumer-staples sector, Bushell likes Alimentation Couche-Tard Inc. ATD.B, one of the largest convenience-store operators in the world. The company, he says, makes acquisitions without raising equity. "Instead, it uses debt finance for its purchases, and pays down this debt quite quickly." Management owns a large stake in the company, he says, and its interests are aligned with shareholders.

The two largest holdings in CI Signature Select Canadian continue to be Toronto Dominion Bank TD and Canadian Imperial Bank of Commerce CM. "I continue to like these two bank stocks," he says. "TD should trade at a premium to its Canadian peers, which it does not, at this juncture."

Outside Canada, the fund has two significant holdings in two U.S.-based banks -- JP Morgan Chase and Co. JPM and Bank of America Corp. BAC. Bushell and his team have sold their holding in Wells Fargo & Co. Inc. WFC. "The stock has had a good run and we took profits."