Full episode: Market Call Tonight for Tuesday, October 24, 2017
David Fingold, vice president and portfolio manager at Dynamic Funds
FOCUS: North American and global stocks
As bottom up stock pickers we don’t make market calls. We have no targets for market averages and do not manage money relative to the indexes. We invest in a concentrated portfolio of high-quality companies that we think will do well over the next three to five years. Our most concentrated funds (such as the Dynamic Global Discovery Fund) own 20 companies, while a more diversified portfolio like Dynamic Global Dividend Fund own 25 companies. We also offer actively managed ETFs, including Dynamic iShares Active Global Dividend (DXG) and Dynamic iShares Active US Dividend (DXU), which have 25 company portfolios.
When we own companies that are in cyclical industries, we do have a positive medium-term view of the industry. The industries we presently like include, but are not limited to: defense (Raytheon, Elbit), construction (Belimo, GCP, Geberit), semiconductors (Inficon, Taiwan Semi), automation (Keyence, Cognex), composite materials (Schweiter) and many others.
Many of the industries we have invested in are not deeply cyclical. They include, but are not limited to: natural food ingredients (Sensient, Frutarom), coffee (Strauss), medtech (Hoya, Straumann), health insurance (United Health), private banking (First Republic), property and casualty insurance (Allstate), and many others.
When we are negative about an industry we do not invest in it at all and assess the impact of negative developments in that industry on our other investments. We are presently negative about commercial aerospace, automotive, energy, telecommunication and mining, and therefore we have no investments there at all. We are also concerned about the extremely high valuation and lack of growth of companies in the utility, REIT and telecom industries, and therefore we have no investments there either.
Investors should consider whether they are taking appropriate risks with respect to commodity prices, interest rates and currencies. Most investors do not. They buy the index or use a closet index portfolio manager and take risks they don’t understand.
Simply put, we invest in companies we like and have no exposure to developments in the global economy that concern us.
KEYSIGHT TECHNOLOGIES (KEYS.N)
Based in Santa Rosa, California, the company provides electronic test equipment. The majority of their business supports wireless network and hardware development and deployment, and will benefit from the rollout of 5G wireless. They also provide equipment used in testing and developing microelectronics. An important business segment is defense electronics. They are one of a small group of companies that provides equipment to test and design electronics used in defense applications. They also provide some hardware used for signals intelligence. Originally founded by William Hewlett and David Packard Packard in 1939 as Hewlett-Packard, it was spun out of Agilent in 2014.
HOYA CORPORATION (7741.JP)
Based in Tokyo, Japan, it is the world’s low-cost manufacturer of eyeglass lenses with plants in Thailand and the Philippines. They also produce endoscopes where they are a market leader. Their electronics segment includes photomasks and hard disk platters. They have expanded their hard disk platter business to a greater size range and have returned to growth. They have a focus on value creation and have consistently improved their growth profile and shareholder returns.
SENSIENT TECHNOLOGIES (SXT.N)
Based in Milwaukee, Wisconsin, it is a specialty chemicals company that is a leading producer of natural food flavours and colours, pigments for printing and cosmetics and an agricultural processor. Natural food ingredients grow above the rate of demand growth for foods. Digital printing is benefiting from the application of this technology to textiles. The company has been reducing costs and exiting less profitable lines of business and continues to improve its margins. The company is also focused on shareholder returns and has bought back stock and increased the dividend.
PAST PICKS: NOVEMBER 23, 2016
- Then: CHF 356.25
- Now: CHF 600.50
- Return: 68.56%
- Total return: 73.82%
SMC CORPORATION (6273.JP)
- Then: ¥31,480.00
- Now: ¥41,290.00
- Return: 31.16%
- Total return: 32.61%
BELIMO HOLDING (BEAN.SW)
- Then: CHF 2,990.00
- Now: CHF 4,164.00
- Return: 39.26%
- Total return: 42.27%
TOTAL RETURN AVERAGE: 49.56%
Dynamic Global Dividend Series F
Performance as of: September 30, 2017
1 Month: 1.6% fund, 2% index
1 Year: 20% fund, 13.2% index
3 Year: 16.2% fund, 12.3% index
*Index: MSCI World Canadian dollar
*Net of fees, total return is shown
TOP HOLDINGS AND WEIGHTINGS
- Keyence Corp.: 5.9%
- Elbit Systems Ltd.: 5.4%
- Frutarom Industries Ltd.: 5.4%
- Raytheon Company: 5.1%
- UnitedHealth Group Inc.: 4.7%
Dynamic Global Dividend Fund Series F inception date March 2006. Portfolio Manager has been on the Fund since inception. Series F units are only available to investors who participate in eligible fee-based or wrap programs with their registered dealer. Commissions and trailing commissions are not payable on Series F units of the Funds but management fees and expenses may be associated with these investments. The indicated rates of return are the historical annual compound total returns including changes in unit values and reinvestment of all distributions does not take into account sales, redemption or option changes or income taxes payable by any security holder that would have reduced returns. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Dynamic Funds® is a registered trademark of its owner, used under license, and a division of 1832 Asset Management L.P.