John Zechner, chairman and lead equity manager at Toronto-based J. Zechner Associates Inc. Illustration by Joel Kimmel.The Globe and Mail
Many investors are betting on another strong year in the markets, but money manager John Zechner has been getting more defensive, trimming stocks in sectors such as technology, consumer discretionary, financials and industrials.
“The contrarian in me says that when everybody’s bullish about everything, it’s time to get a little cautious,” says Mr. Zechner, chairman and lead equity manager at Toronto-based J. Zechner Associates Inc., who oversees about $100-million of his firm’s $1.1-billion in assets.
His wariness stems from what he believes are overvalued markets after two years of strong growth, tariff threats from the Trump administration and risks of a return to higher inflation.
Mr. Zechner has also reduced his U.S. equity holdings based on their higher valuations and added more Canadian stocks.
His average balanced accounts currently have about 48 per cent stocks (10 per cent U.S. and 38 per cent Canadian), with the rest in fixed income, including 10 per cent in iShares 20+ Year Treasury Bond ETF TLT-Q, U.S. Treasury bills, short-term Canadian bonds and preferred shares. A year ago, his balanced account mix was 52 per cent stocks (18 per cent U.S. and 34 per cent Canadian) and the remaining 48 per cent in Canadian mid-term and corporate bonds and preferred shares.
The average balanced account returned 14.5 per cent over the past year. Its three-year annualized return is 6.7 per cent and its five-year annualized return is 10.1 per cent. The results are based on total returns and are net of fees as of Dec. 31.
The Globe asked Mr. Zechner to discuss three stocks he owns and likes right now and one he recently sold:
Name three stocks you own today and why.
AtkinsRéalis Group Inc. ATRL-T, the engineering services and project management company formerly known as SNC-Lavalin Group Inc., is a stock we’ve owned for more than a year in all client accounts. We believe the company is well-positioned to continue realizing strong organic revenue growth and margin expansion. It has a strong backlog of projects across various industries and favourable demand trends, including an underappreciated nuclear segment.
AtkinsRéalis trades at a lower valuation than its Canadian engineering services peers. The biggest risk with engineering companies like this one is cost overruns. However, the company is moving away from fixed-cost contracts, which should help reduce that risk in the longer term.
Pfizer Inc. PFE-N is a stock we’ve owned for clients for about five years. It has a high dividend, yielding about 6 per cent, and a lower valuation than many of its health care industry peers. The stock has fallen about 60 per cent from its 2022 high during the pandemic due to the drop in COVID-19 vaccines and the recent appointments of health industry leaders by the Trump administration who are viewed as ‘unfriendly’ to the pharmaceutical industry. However, we believe the sell-off is a buying opportunity. The company has done a good job of using its pandemic-era vaccine revenue to add to its growth pipeline, including promising diabetes and oncology drugs. There has also been activist investor interest in the company, which could jumpstart shareholder-friendly moves.
Meta Platforms Inc. META-Q is a stock we’ve been in and out of since it went public [under its former name Facebook] in 2012. We started buying it aggressively when it came under pressure in 2022 and its valuation fell to about 10 times earnings. Meta is one of the best ways to participate in the monetization of artificial intelligence services. The penetration of its apps will allow it to bundle AI products for its customers effectively. Also, its mobile advertising business is one of the best-targeted methods of reaching customers and improving productivity.
Name a stock you sold recently.
We sold our entire position in Nvidia Corp. NVDA-Q in late 2024. The stock increased by more than 200 per cent in the two years we owned it and was the single-largest contributor to gains in our clients’ accounts over that period. We expect the growth of its GPU [graphic processing unit] sales to slow as the company faces more competition from newer entrants and other companies building their own infrastructure products. That will cause Nvidia’s margins to decrease. We’re not looking at buying it back yet, despite this week’s sell-off and expectations that the company will again meet and raise expectations when earnings are announced in early March.
This interview has been edited and condensed.