Mackenzie Canadian Growth Team
Most major global markets delivered positive returns with lower volatility compared to recent quarters. Although much of the performance was the result of a recovery from the short-lived Brexit sell-off at the end of the prior quarter, the global economy continues to grow, which we expect will result in rising corporate earnings over time. Typically, this is a supportive environment for equity markets.
In our view, although market valuations appear to be higher than long term historical averages, they remain within reasonable ranges, given the low level of inflation and interest rates globally. This, in combination with continued earnings growth for companies in general, suggests to us that equity markets remain reasonably attractive.
Outlook & Strategy
What are the key opportunities you see?
- Over the past decade, global growth has been fairly anemic, and we do not anticipate any significant, durable improvement. We believe our investment style, based around owning 30-35 high-growth businesses at attractive valuations, is well suited to this environment. In nearly all economic environments, there are companies that perform well; we do not view current economic conditions as being an exception. During the quarter, we added positions in Metro-Richelieu, Potash Corp, Omnicom, and Nike.
What are key risks that need to be managed?
- Productivity growth has been below historical levels for an extended period of time (suggesting a less dynamic economic environment) but we are seeing the opposite in terms of the level of disruption of traditional, and often long-standing, business models. In particular, there has been significant turmoil in media and retail, with new internet-oriented businesses obtaining significant market share. The energy sector, still struggling to recover from a large supply shock created by the advent of U.S. Shale oil, appears to be at the forefront of experiencing a gradually building demand shock with the electrification of vehicle powertrains.
- Generally, while disruptive change creates winners and losers, we tend to find it difficult to identify the ultimate winners and far simpler to avoid the likely losers.
How are you positioning portfolios in response to this outlook?
- We continue to actively seek out high growth companies at attractive valuations to include in our portfolios. We are fairly cautious when analyzing businesses attempting to adapt to disruptive change, as such change is difficult to forecast and manage. As a result, we tend to own companies in more stable, less competitive areas.