Where to Find Value in the TSX?

The tide might be turning for cyclicals, but portfolio managers warn that you need to be very specific as you buy in Canada right now

Yan Barcelo 10 September, 2020 | 12:52AM

Market Watcher

The coronavirus pandemic has affected nearly everyone on the planet. Investors were not immune, and most of us can remember the panic and volatility of March and April. But it has been relatively smooth sailing since, as using the concept of the “pain index”, the COVID-19 bear market goes down in history as one of the least painful on record, lasting a total of about 120 trading days with a maximum drawdown of about 34% - at least in the U.S. For Canadian stock investors, the recovery hasn’t been quite as boisterous. As of August 17, 2020, the S&P/TSX Composite benchmark index is roughly 6% shy of its pre-pandemic highs.

In fact, Stéphane Rochon, vice-president and general manager, portfolio advisory team, at BMO Wealth Management bemoans the situation, saying that the reason for the underperformance “holds with the structure of the market itself”. The TSX, he explains, is a lot less diversified than the S&P 500 and quite low on growth stocks that have outperformed in the last decade.

Secular growth stocks (able to grow in any economic environment) like Amazon, Google and Shopify have steamed ahead while others trailed behind, notably in Canada which has suffered from tepid growth and hyper-cyclical stocks that have been decimated. But the tide might be turning, if you want to buy – but be wary.

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About Author

Yan Barcelo  is a veteran financial and economic journalist with more than 30 years of experience, writing for many publications in Toronto and in Montreal, including CPA MagazineLes Affaires and Commerce.

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