“My retirement savings are in the same portfolios as our clients.”
Alfred Lam is passionate about investing—and he has been successfully investing on behalf of his clients for nearly two decades. Leading a team of investment experts, he oversees $41B in CI Investment solutions, including $11B in CI’s Portfolio Series available from CDSPI.
Alfred shared his thoughts on current market conditions and his approach to building wealth for his clients.
“Geopolitical noise is loud, but not significant for long term investors.”
We can’t ignore the effect that Brexit will have on the European economy, or recent American trade policies on the world’s economy. But it’s not a good idea to pay too much attention either. For long-term investors there is still good value to be found in developed economies that will weather tariff skirmishes and some political uncertainty.
“Cannabis is not going to our head.”
For us, there is still way too much uncertainty to make any confident investment decisions. There are many players in the business, some of whom won’t survive, along with issues surrounding policies, operations, distribution and pricing. And with no history of cash flow, it is almost impossible to accurately value the companies involved.
“Over the next 10 years I’m quite confident that Emerging Markets will outperform the S&P500.”
Many previous sources of concern in emerging markets—political and social issues, currency volatility, weak infrastructure—are subsiding, and many of these countries have impressive GDP growth due to an expanding middle class and demand for their products. We see a lot of companies with good value and good prospects.
“It’s almost impossible to find value in the tech sector.”
One of the key indicators we look at when evaluating a company—or an entire sector—is its price/earnings ratio (P/E). This is a company’s current market price divided by its earnings per share. The P/E is often expressed as a multiple of earnings, so if its price is $50 and it’s earning $2 per share per year, that’s a multiple of 25.
To find value, we typically like to see a P/E multiple below 20. In recent years, investor exuberance pushed some tech stocks to multiples in the hundreds! Amazon, a tremendously successful company by many measures, still has a current P/E of around 80. They have to keep growing to meet investor expectations, but if interest rates continue to rise and the economy slows, they could face some real challenges—like a bird that can never land.
“It’s time to rethink Canada.”
Canada has been out of favour for investors in recent years, but the valuations are becoming attractive again. The P/E multiple for the S&P/TSX is the lowest it’s been in six years. The banks are healthy, resources are still depressed (which means good upside potential), and the market is generally less volatile than in some other regions. Also, most of our fixed income investment is in Canada which helps avoid fluctuating currency issues.
“We invest in great companies at a great price.”
Every company has an intrinsic value—a stock’s estimated worth based on fundamentals like P/E ratio, cash flow, debt, expected growth rate and many other factors. We analyze enterprises around the globe to determine their intrinsic value and build a portfolio of solid companies whose current prices are below their intrinsic value.
“Our positioning changes with the market cycle.”
There are times to be aggressive in the market and times to be defensive. With valuations higher than we’d like and interest rates continuing to rise, we’re focused on protecting what investors have gained. Some defensive tactics we use are:
- Investing in defensive sectors like utilities, consumer staples and health care
- Derivatives to help hedge against market volatility
- Gold bullion which is relatively well-priced
- Higher cash weighting
- Currency hedging
“Staying active reduces vulnerability.”
Passive investing means putting a disproportionate amount of a portfolio in the top listings of any index. For example, the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) make up 11% of the S&P 500. When these stocks become vulnerable—such as with the Facebook privacy scandal, Google fines, and Netflix losing subscribers—then the whole index suffers. We actively diversify in companies across the index and tend to avoid the “hot stocks”.
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Alfred Lam, BComm, MBA, CFA
Senior Vice-President and Chief Investment Officer, CI Multi-Asset Management
CI Investment Inc.
The opinions and information provided in this article are solely those of the author and not to be used or construed as an endorsement or recommendation of any entity or security discussed or legal, taxation or investment advice provided by CI Investments Inc