Jeff Guise, Connor, Clark and Lunn Private Capital | BCBusiness
Investors have never faced more confounding markets: stocks defied traditional wisdom last year by soaring despite sluggish economic growth, and interest hovered near zero— for yet another year. To help make sense of the options available to investors today, we turned to local experts for some definitive direction
Vice-President and Chief Investment Officer, Connor, Clark & Lunn Private Capital Ltd.
Shift asset allocation from fixed income to international equities, small-cap stocks and infrastructure
One-year return, CC&L Market Neutral Fund: 27.47%
As head of the high-net-worth investor platform at $46-billion Connor, Clark & Lunn Financial Group, Jeff Guise keeps a close eye on the global economy. “That sets the tone for us in terms of what we think is going to happen in markets,” Guise says. “Is the economy accelerating, is it decelerating or is it contracting? We look at the overall trend in economic growth to determine whether we think stocks are going to perform well or fixed income is going to perform well.”
Today, he sees encouraging signs in what he describes as a co-ordinated worldwide upswing in momentum. “That doesn’t mean we’re going back to the real strong economic growth days that we saw in the ’90s and maybe even the early part of the 2000s, but it does mean that we think economic growth is going to be positive,” says Guise, who oversees $3.7 billion in assets. “At the same time, inflation remains in check, so we would say against that backdrop, equities should perform pretty well and bonds will be on the back foot. Not to say that we expect really significant negative returns in bonds.”
Looking ahead to 2014 and beyond, Guise says he’s talking to clients about the risk-return tradeoff they face. He encourages them to define risk in three ways. The first: potential dollar loss in any given year. The second is not taking enough risk to generate sufficient returns over the long haul, and the third is investing in illiquid securities when you need access to capital.
Where it sees an opportunity to improve diversification and provide returns that aren’t driven by the ebb and flow of the broader economy, CC&L recommends that private clients include alternative assets such as private equity, hedge funds, real estate and infrastructure in their portfolios.
For some investors, adding more equities could be another part of their shift away from fixed income, which won’t match its historical returns over the next decade, Guise says. “Even within that, we think people are over-allocated to Canadian equities and they need to consider foreign assets.”
Two Recent Investment Picks
Foreign small- and mid-cap stocks
“In 2013, we added foreign small- and mid-cap companies as a way to participate in the domestic recovery that we saw happening in the U.S.,” says Guise, noting that the equities are mostly American but also include European and Japanese names. “We didn’t think we could get it through the large-cap index, which has a high proportion of foreign earnings.” Clients gained access to those stocks through a dedicated portfolio of about 50 companies.
Grand Renewable Solar Project
Connor, Clark & Lunn Infrastructure recently closed an equity investment in this new project in Haldimand County, Ontario, with partners Samsung Renewable Energy Inc. and the Six Nations. The largest ground-mount solar facility in North America, the $550-million plant will produce 100 megawatts, Guise says. “It’s a 20-year investment, and we participate at the late-development, early-construction stage.” (CC&L clients can participate in the firm’s infrastructure plays through a trust that invests in internally managed limited partnerships with exposure to different areas of the market.)
Once the project starts operating, investors such as pension funds could take an ownership stake through a direct investment, Guise says. “But at the construction stage, there isn’t as much interest, so we think it’s an attractive risk-return balance for us.”