Why this money manager believes markets will end the year higher

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Money manager Allan Small believes investors can finally stop talking about a recession and focus on economic growth instead.
“The idea of recession is off the table in North America,” says Mr. Small, a senior investment advisor with Allan Small Financial Group at iA Private Wealth, based in Toronto, who oversees about $350-million in client assets.
He notes that unemployment is relatively low and the economy is still growing, particularly in the U.S.
“We’re in a slower-growth economy now, but that’s by design because central banks wanted it that way and used interest rate hikes to bring down inflation,” he says. “The good news is that we seem to be at peak interest rates, meaning they’re unlikely to go higher. It’s only a matter of time before [central banks] start cutting interest rates.”
Mr. Small is bullish on the markets and believes they’ll continue to tick higher as the year progresses.
“I believe we’ll continue to have a positive year and that markets will end the year higher than where we’re at today,” he says.
His average equity portfolios for medium-risk investors returned between 10 and 12 per cent so far this year and 20 to 25 per cent in 2023. The performance is based on total returns, net of fees, as of May 8.
The Globe spoke with Mr. Small recently about what he’s been buying and selling.
Describe your investing style.
My general investment style is GARP, or growth at a reasonable price. Value is important, but there also needs to be earnings growth. I’m also a bit of a contrarian investor. I look for opportunities when a stock I like falls. A recent example is Toronto-Dominion Bank TD-T, which has seen its stock drop following news about an investigation in its U.S. operations tied to a money laundering and drug-trafficking operation. Many investors don’t like it because of the negative headlines, but it could be an opportunity to buy a good-quality name with a good-paying dividend yield. Another example is when the market dropped in 2022; I was buying equities, particularly technology stocks, which were the hardest-hit area. I was hoping they would rebound in 2023, and they did.
What have you been buying?
I’m very bullish on the technology sector right now. If you’re looking for growth, you need to own tech. My number one pick in tech right now is Alphabet Inc. GOOG-Q. I see a lot of growth ahead for that company. I also like Amazon.com Inc. AMZN-Q. Its valuation isn’t as cheap as Alphabet’s, and it’s up quite a bit lately, but I think it has more room to run.
On a more contrarian note, Meta Platforms Inc. META-Q has fallen in value, so I see an opportunity there. Advanced Micro Devices Inc. AMD-Q is another name that has dropped off recently, but I think it’s a good long-term buy.
I’m also positive about the banking sector. Banks have been taking it on the chin for a while, but they’re the bloodline of the economy. In Canada, I like Bank of Nova Scotia BNS-T. It has one of the highest dividend yields in the sector. I also like TD after its recent pullback. I like Bank of America Corp. BAC-N because of how it’s bringing technology to its everyday banking services. I also like some of the smaller regional banks in the U.S.
What have you been selling?
I’ve been trimming a few names, such as chipmaker Nvidia Corp. NVDA-Q and equipment rental company United Rentals Inc. URI-N, to take profits. These names have increased so much in the past year that you can’t help but take some profits; it’s part of risk management. I still own them.
I’ve also sold all of my real estate investment trusts and telecoms, such as BCE Inc. BCE-T in Canada and Verizon Communications Inc. VZ-N and AT&T Inc. T-N in the U.S. I don’t see them growing that much.
Name a stock you wish you had bought or hadn’t sold.
Microsoft Corp. MSFT-Q is a company I wish I had bought much sooner. It was one of those names you could never buy because it was always expensive. It always traded at a premium, but that premium was well deserved. It’s something you struggle with as a GARP investor. I started buying Microsoft in 2022 after the large pullback in tech and have made money on it, but if I bought it sooner it would’ve worked out even better.
What advice do you have for new investors?
There’s a lot more investment information out there today, and some of it is incorrect or embellished, which can be overwhelming. You have to factor out the noise and get into the game. Just start, even if it’s only $50 a week or every two weeks. As the old saying goes, ‘It’s time in the market, not timing the market.’ And if you’re wondering what to buy, start with a simple exchange-traded fund or mutual fund. If you want to buy individual stocks, buy something you know, like the bank you go to or the products you use. There are many great companies that people come across every day, and if you have a dollar-cost average – which is to buy a little bit at a time, over time – you should do well in the long term.
This interview has been edited and condensed.
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