Stu Kedwell, senior portfolio manager and global head of equities at RBC Global Asset Management Inc.Craig Bagol/The Globe and Mail
Stu Kedwell was 19 when he inherited 40 shares of U.S. conglomerate 3M from his grandmother’s estate. Although he launched a window-washing business and sold futons while earning a commerce degree at Queen’s University, stocks still weren’t on his radar.
That changed after he joined RBC Dominion Securities, the wealth management arm of Royal Bank of Canada. He started as a trainee and did a stint with the portfolio advisory group before managing money.
He and Doug Raymond co-run the $8.2-billion RBC North American Value Fund, a Canadian-focused equity offering that has outpaced the S&P/TSX Composite Total Return Index since 2005. We asked Kedwell why he’s a gold bull and likes Berkshire Hathaway.
Can you describe your investment strategy?
We buy growth stocks at reasonable prices. After identifying companies that we want to own, we do scenario analysis to understand different outcomes for them. We want businesses that can compound faster than the stock market over time.
What’s your outlook for Canadian versus U.S. stocks?
We’re finding more value in Canadian equities, which is 60% of the fund. All domestic sectors, except for technology, trade in line or below their long-term averages. Loan losses at the banks are a worry due to rising unemployment and falling condo prices, but they’re well capitalized to deal with the challenges. Our top bank holdings are Royal Bank and TD Bank. We acquired shares of TD on weakness last year when it was dealing with money-laundering issues. We saw value in them.
What’s your outlook for Canada’s energy sector?
Oil prices have fallen, but the balance sheets of energy firms are strong, and their free cash flow generation is very reasonable. We own Canadian Natural Resources and Imperial Oil, which have long-life oil sands assets. These stocks are attractive if crude recovers in 18 to 24 months. In the meantime, we can collect attractive dividend income. We own pipelines, such as TC Energy and Enbridge, that have high-dividend yields and good prospects. TC Energy, which is more gas-focused, will also benefit from the build-out of liquefied natural gas plants in Canada. Enbridge has more of an oil focus but has acquired some utilities.
You own the iShares S&P/TSX Global Gold ETF. Why?
I’m bullish long term on gold. More central banks and foreign countries want to own it versus the U.S. dollar for a variety of reasons, including their worries after sanctions were imposed on Russia when it invaded Ukraine. The dollar has arguably plateaued and is set to weaken, so that’s good for gold, as well as concerns about the growing U.S. fiscal deficit. We prefer owning an ETF in the gold sector to reduce the risk of owning individual stocks.
Craig Bagol/The Globe and Mail
Berkshire Hathaway is a top holding. Is it still attractive given that its legendary investor, Warren Buffett, will retire at year-end?
If I own a security run by a 94-year-old man, it’s because he has management in place for a successful succession. I like conglomerates like Berkshire because you get revenue from many sources, and it’s reallocated back across their businesses. Berkshire gets a lot of cash from its insurance group. Some people say it’s not being optimized, but I’m comfortable with it. When the skies are sunny, it’s what you expect Berkshire to do. In a downturn, you’d expect the cash to be put to work successfully.
Among the so-called Magnificent Seven U.S. tech stocks, your fund owns Meta, Alphabet, Microsoft and Apple. Why?
We also owned chipmaker Nvidia but sold it in July because its valuation had already priced in its growth potential. Microsoft has a more enduring business model. It’s growing at a strong clip with the right products and services. We own Meta and Alphabet because they have a lot of advertising exposure. Meta benefits from a rising user base on Facebook, Instagram and WhatsApp. We like Alphabet based on a sum-of-the-parts valuation, despite concerns about AI chatbot risks to its Google search engine. Apple is lagging in the AI race, but its service revenue is growing strongly.
Editor’s note: This article has been updated to correct Stu Kedwell's title. He is senior portfolio manager and global head of equities at RBC Global Asset Management.