GLC’s Canadian All Cap GrowthOpens in a new window portfolio strategy has beat the S&P/TSX Composite every year from 1 through to 10 years on an annualized gross return basis* – an active managers’ sweep. But lead portfolio manager Patricia Nesbitt’s success has never been a gamble it’s been about finding high-quality growing companies, with savvy management teams in industries positioned for secular growth. Nesbitt and her team find, analyze and invest with these companies through a unique multi-faceted investment approach designed to capitalize on today’s market themes through all periods of a market cycle. One of those market themes has been a unique defensive play in tech-related companies.
*as of October 31, 2018
Video Description: “The GLC’s Canadian all cap growth video, features a panel discussion lead by Patricia Nesbitt, a lead portfolio manager.
Description: A full screen graphic banner displays the GLC Management logo. The scene transitions to 3 people dressed in business attire forming a panel. The panel is comprised of 2 men and one woman, Patricia Nesbitt. The panel has Patricia situated in the centre seat, with Dominic Plante to Patricia’s left and one male participant on Patricia’s right side. The conversation begins, the shot does not change.
Patricia: And then we've looked at other parts of the market where we can be confident in the long-range growth prospects, and more themes that we feel are resilient in a more challenged economic backdrop. And one of those themes we've talked about in the past is the "own the internet" theme. Really looking for, replicating the internet infrastructure in the portfolio. It's difficult to really understand who might win the battle of, be it ecommerce, or, you know, pick your application that would be internet driven. You know, autonomous cars, that type of thing that's very data heavy. We've owned the whole array of infrastructure from data centres, metro fibre operators, long-haul fibre, and then that last mile into the home: broadband companies like telecom and the cable companies. And those have been really tremendous performers for us. And we can replicate that in Canada, U.S. names, you can get more data centres and certainly those have been very terrific performers for us. Those are the kind of themes that we like to find where we feel there's an earnings theme, earnings growth there that's going to be more resilient than some other names might be.
[Dom: "...For providing you the alpha, that additional growth versus the benchmark."]
Canadian All Cap Growth (GWLIM) portfolio capitalizes on an ‘own the internet’ theme to deliver strong investment performance
The internet super highway has a traffic problem – so own the solution, not the problem. The migration to a digital economy is driving huge demand for the digital infrastructure needed to support it – things like colocation (the physical locations and data centre where equipment, space, and bandwidth are available for lease) and interconnection tools (think of all the apps and service providers retailers need to facilitate their apps and online shopping strategies, and facilitate the end user access to tools, content and services). While it can be hard to know from one quarter to the next which tech mega-stock will take the lead, we do know that tech leaders (big and small, established and emerging) will continue to need specialized infrastructure to deliver their digital products and services to consumers.
“We are in the late stages of the current market cycle, so why gamble on the high-priced, volatile mega-stocks (think Facebook, Amazon, Netflix, Google, etc. - the FAANG stocks) where taking a meaningfully active position would create portfolio concentration risk and exposure to high volatility, when instead you can ‘own the internet’ highway they all have to drive on anyways.” Explains Nesbitt when asked about the portfolio’s current tech-related exposure.
The portfolio’s focus for tech-related exposure
· The interconnection revolution
Interconnection continues to play a pivotal role in a network and cloud-centric world. The speed and reliability of how you deliver a digital solution can make or break a company. Bandwidth infrastructure services and access to existing or expanding high-speed fiber-based networks to deliver faster and faster gigabit speeds are in high demand.
· The last mile connections for customers
Think about it – chances are you access wildly different apps on your phone than your children or parents do, but there is a very good chance that the telecommunications company that delivers that connectivity to you is the same. That’s particularly true in Canada where the number of ‘last mile’ connectivity providers (i.e. telecom and cable companies) is relatively small and their client base spans both residential and commercial/enterprise users. So, while Snapchat versus Facebook might provide hints into your age demographic, Rogers Communications and Bell (BCE) are happy to service the whole family with mobile, digital and direct-to-home satellite services.
Current tech-related stock holdings
In addition to Rogers Communications and Bell (BCE) (both of which offer a full range of diversified communications and media services to residential and business customers in Canada), the Canadian All Cap Growth Equity (GWLIM) portfolio also holds Telus Corporation, a Canadian national telecommunications company that provides a wide range of telecommunications products and services including internet access, voice, entertainment, healthcare, video, and IPTV television. With a focus on the large Quebec market, Nesbitt’s team has held Quebecor for several years now. Quebecor's activities include wireless voice and data communications services over its Quebec-wide GSM, HSPA and LTE networks, as well as cable television, telephony and high-speed Internet access services over its broadband networks.
When holdings within the US present unique opportunities for the portfolio (N.B. with the exception of the “London Life Pathways” version of the portfolio, which is pure Canadian, this portfolio strategy allows for up to 30% US holdings), Patricia Nesbitt and her team have looked to companies like Equinix. Equinix invests in interconnected data centers and focuses on developing network and cloud-neutral data center platforms for cloud-based enterprises, mobile service providers and IT networks. The internet might not live in Equinix data centers, but it sure rents a lot of space from them! Likewise, CyrusOne owns, operates, and develops enterprise-class and carrier-neutral data center properties. The company provides mission-critical data center facilities that protect and ensure the continued operation of IT infrastructure. Comcast, a long-standing holding of the portfolio has successfully pivoted to connectivity, with broadband investment helping it deliver ultra-fast gigabit speeds and allowing it to amass almost 27 million customers.
A unique multi-faceted investment approach designed to capitalize on today’s market themes though all periods of a market cycle
What to expect from this portfolio strategy
· All-cap Canadian equity portfolio with diversification across sectors.
· Strong performance in rising-market conditions and defensive positioning in down-market conditions relative to the broad Canadian benchmark.
· Backed by one of Canada’s largest financial institutions, this specialized investment team doesn’t have to be all things to all people, and instead can focus its expertise solely on its unique approach – and its goal to deliver strong long-term investment performance.
Capitalizing on current market conditions (that have become increasingly volatile since the summer of 2018), means Nesbitt and her team are actively de-risking the portfolio by moving away from more cyclical, riskier positions. But, as highlighted by the portfolio’s ‘own the internet’ theme, that doesn’t mean avoiding diversification and exposure to growth opportunities. It’s that kind of experience and expertise to spot long-term investment themes and opportunities through all market cycles that has helped GLC’s Canadian All Cap Growth portfolio strategy outperform the Canadian stock market over the past decade.
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This commentary represents GLC’s views at the date of publication, which are subject to change without notice. Furthermore, there can be no assurance that any trends described in this material will continue or that forecasts will occur; economic and market conditions change frequently. This commentary is intended as a general source of information and is not intended to be a solicitation to buy or sell specific investments, nor tax or legal advice. Before making any investment decision, prospective investors should carefully review the relevant offering documents and seek input from their advisor.