Manager perspectives on global investing

BMO's Greg Gipson, Mackenzie's Steve Locke, Mawer's Paul Moroz and Fidelity's Geoffrey Stein

Diana Cawfield 13 June, 2014 | 12:24AM
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With Canada representing less than 4% of the world's stock-market capitalization, diversifying globally opens the doors to an immensely greater set of investment opportunities.

For manager insights and strategies on global investing, we spoke to four portfolio managers whose mandates collectively span equity and fixed-income investments around the world.

Greg Gipson, head of portfolio management for systematic investments at BMO Global Asset Management in Toronto

Slightly more than half of the portfolio of BMO Global Equity Class is held in U.S. stocks, says Greg Gipson. "We believe the U.S. economy will be the primary driver of global growth this year."

Gipson says the fund, which combines stock picking with identifying promising themes, will typically have half its assets invested in North America, with one-quarter in each of Asia and Europe. This particular strategy focuses on developed equity markets that span about 23 countries.

Greg Gipson

"There are three major themes that we're positioned for in the fund," says Gipson, The first one is global demographics, the aging of the world's population. Gipson says this is the "Big Pharma," theme, referring to companies that are involved in maintaining good health and improving longevity.

The second theme is data management. Gipson says this theme is centred on companies that manage or store "big data." They include computer-hardware manufacturers.

Thirdly, says Gibson, is the "Big Brother" theme, focused on global security. This theme includes defence contractors and security providers.

Steve Locke, senior vice-president and head of the fixed-income team at Mackenzie Investments in Toronto

In deciding on an asset mix, Steve Locke and his colleagues consider the growth rates and fiscal and monetary policies of different countries and regions, as well as valuations of individual stocks.

The goal is "to make sure we have the right lens," says Locke, "with respect to those macro risks which can drive equity assets up or down significantly through a cycle."

Steve Locke

Locke cites as an example Mackenzie Strategic Income, which currently holds roughly a 50-50 mix of equities and bonds. This represents a neutral position, since the equity exposure could range up to roughly 20 percentage points higher or lower, depending on the managers' assessment of market conditions

The global equity exposure was boosted in the past couple of months. "We felt that there was a potential for an expansion of equity valuations in some markets that maybe the Canadian market was not going to replicate," says Locke.

The fixed-income sleeve of the globally diversified portfolio emphasizes higher-income opportunities in corporate issues, including high-yield bonds and floating-rate loans. "The strategy is to be paid for taking credit risk, and the vast majority of the fund right now is in corporate debt," says Locke, "with the majority of that in high-yielding corporate bonds."

Paul Moroz, director and deputy chief investment officer at Mawer Investment Management in Calgary

Paul Moroz

For Paul Moroz, one of the key benefits of investing globally is being able to make a portfolio resilient to negative developments.

He notes that if you're a Canadian investor who is diversified across Canadian banks and diversified across energy, both sectors will be similarly exposed to losses if energy prices decline and the Canadian dollar declines as a result.

The Mawer team looks at these and other potential scenarios as part of their risk-management process, says Moroz, whose responsibilities include managing Mawer Global Equity. "Let's say we run into inflation in Europe, or what if there's a credit problem in China, we want to make sure our portfolios bounce back from that."

The fund will hold no more than 20% in emerging markets. These countries currently represent just under 5% of the current portfolio.

Otherwise, the fund has no specific geographic constraints and portfolio building is done much more on a stock-by-stock basis than on the basis of countries or regions.

Geoffrey Stein, portfolio manager, Fidelity Investments, with Boston-based Global Asset Allocation Group

Geoffrey Stein

Geoffrey Stein says any investor in Canada needs to be aware of the "big, wider world out there." Given the cloudy economic outlook for China, a huge consumer of natural resources, Stein says it makes sense to diversify beyond Canada's resources-heavy economy. He notes that industry sectors such as health care and information technology are not well represented in Canada.

Stein, who manages Fidelity Global Monthly Income, describes the fund as a "truly global portfolio" in both the equity and fixed-income portions.

Even so, about 48% of the portfolio is currently made up of U.S. equity and fixed-income securities. "The U.S. is a big percentage of the global capital markets," says Stein, "both in global equities and global investment-grade bonds."

Compared to the rest of the world, says Stein, "Europe, which has really struggled, or Japan, or potential concerns coming out of China, on a relative basis, the U.S. looks like a safe haven."

As for high-yield bonds, issuers of these securities are also mostly domiciled in the U.S., Stein notes.

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Diana Cawfield

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