Garey J. Aitken, a portfolio manager with Franklin Bissett Investment Management, is bullish on Canadian equities despite the adverse impact of low commodity prices.
"You've got one aspect of the market that's performed very well over a number of years," says Aitken, "and then you've got the other side that's cyclically oriented, either it's direct resource exposure or indirect. We're more optimistic because we think that some of the factors will normalize, that eventually global economic growth will revert to a better pace of growth."
Aitken, based in Calgary, co-manages Franklin Bissett Canadian Equity, along with Tim Caufield. He notes that over the last five years the Canadian equity market has underperformed U.S. and global equity markets. "This underperformance has resulted in valuations far more attractive than normal." As well, he adds, Canada still has a favourable environment of low interest rates, which is supportive of equity valuations.
When evaluating return potential, Aitken considers a time horizon that is at least as long as a full market cycle. "We would expect that sectors like industrials, energy and probably materials are likely poised here for outsized gains over the next five to 10 years."
In selecting stocks, the Bissett team uses a blend of growth and value criteria. "We're a free-cash-flow-based investor," says Aitken, employing a methodical, buy-and hold strategy. The team wants to ultimately come up with an assessment of the intrinsic value of a stock, with a comfortable margin of safety. "So we want to have our cake and eat it too."
Aitken says the Big Five banks continue to be among the top 10 holdings of the fund, as they have been historically. Collectively, banks represent more than half of the fund's 39% weighting in the financial sector. Aitken says the fund's exposure to the big banks is similar to their weight in the S&P/TSX Composite Index, but emphasizes that this similarity is coincidental since his investment strategy is benchmark-agnostic.
The bank-stock weightings are based on Aitken's bottom-up process. "We get asked about the banks constantly," he says. "I think right now investors are climbing the proverbial wall of worry."
Looking at the risks and recent data on the banks from a fundamental point of view, "we feel very good still," says Aitken. "The takeaway is that they're tremendous franchises, they're very well positioned, well managed and shareholder-friendly, with attractive dividends."
The Bissett team believes that the valuations of the big banks remain very attractive in terms of their profitability and growth profile. "The valuations really take them right to the top for us in terms of investment opportunities," Aitken says. "So the banks have got all the attributes that we look for: great businesses that we think will grow and be better businesses 10, 20 years from now."
One of the fund's top holdings, Brookfield Asset Management Inc. (BAM.A), is also in the financial-services sector but is a very different type of company. Aitken says the company's operations are centred on three primary types of businesses: renewable energy, real estate and infrastructure. "We think the management has done a tremendous job," says Aitken, "focused on investing in long-duration, real-return assets. It's a business that really checks all the boxes for us in terms of that profitability, the growth profile, the management strength, the capital structure and then the valuation as well."
Within the energy sector, which represents 20% of the fund, 
Tourmaline Oil Corp. (TOU) is a long-standing holding that is typical of what the Bissett managers look for in an exploration and production company. Tourmaline is favoured for its "terrific" management team, with its very enviable track record, strong balance sheet and low-cost structure.
"It's a neat, clean story," says Aitken, "in this environment when there's so much concern about the balance sheets of companies and whether they're going to survive or not. Even in this very challenging environment, they're still forging ahead with the business plan and growing."
Aitken notes that the energy sector has considerable influence on the entire Canadian equity market. He says the financial sector, for example, benefits from a stronger energy sector and vice versa.
So how does Aitken manage volatility? In terms of the Canadian equity mandate, he says the weight in the energy sector is "kept in check," and the portfolio emphasizes less volatile stocks.
Looking ahead over the coming quarters, Aitken says energy is going to be the big wild card. "I think in all likelihood, it will really be a big driver as to whether the Canadian market does better or whether it's disappointing."
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