Mackenzie Minute: May 18, 2018
Jonathan Norwood, co-lead of the Mackenzie Cundill Team, says tech stocks, commodities and oil stocks are on a precipice in terms of the market cycle.
JONATHAN NORWOOD: We have noticed that many styles and many stocks are really on a bit of a precipice in terms of where they are in their cycle. And if you look at tech stocks, we truly believe that there's an asset class there that will see capital leave at some point and look for another sort of riskier asset-based home. Traditionally, particularly after the tech wreck in 2001, a lot of tech investors left those types of stocks and went into energy. And the same thing happened in the early '70s with the Nifty Fifty stocks. We may very well see something similar happen over the next year or two.
Top-down, I believe we are sort of seeing a classic late cycle phenomenon take place. We are starting to see commodities outperform. We are starting to see companies that sell big tickets outperform, because those types of products and purchases tend to get delayed until big companies feel good about what they are seeing in the market, which typically takes place late in the cycle. On the commodity front, we are especially interested because there seems to be a bit of a decoupling between oil prices and commodity stocks and also the underlying market, and we think that can provide some interesting diversification power for our clients' portfolios, so we have been selectively adding to a number of energy stocks.
One of the nice things about being a generalist is that we have the ability to pick and choose our points or our positions in the overall market. We don't have to be invested in an underlying sector if we don't view it as fundamentally attractive. But in the case of oil, which is a sector that Richard [Wong] and I really don't have any sort of affinity for, we find it very compelling right now. It has a lot of mean reversion tendencies, which we look for, and again the equities are considerably undervalued relative to the commodity in our view, and we think there is a big catch-up trade that is going to take place in the latter part of this year.