Rob Cavallo, senior portfolio manager with the North American equities team at RBC Global Asset Management Inc. in Toronto. Illustration by Joel KimmelThe Globe and Mail
Money manager Rob Cavallo believes investors may see more market growth ahead, especially if interest rates continue to decline and corporate earnings stay strong, but warns the ride could be bumpy.
“We think we’re at the start of a positive earnings revision cycle that might only get heightened depending on how the rate-cutting environment plays out,” says Mr. Cavallo, senior portfolio manager with the North American equities team at RBC Global Asset Management Inc. in Toronto, who oversees more than $6-billion across various growth strategies.
“That’s not to say there’s not volatility in front of us and geopolitically; things can still change on a dime,” Mr. Cavallo adds, which is why he says his portfolios remain balanced in sectors such as health care, industrials and financials.
Mr. Cavallo co-manages a handful of funds with Marcello Montanari, including the flagship RBC Life Science and Technology Fund, which includes about 80 per cent technology, media and internet stocks, such as Nvidia Corp. NVDA-Q, Microsoft Corp. MSFT-Q and Meta Platforms Inc. MSFT-Q, and the remainder in health care stocks such as Eli Lilly & Co. LLY-N and AbbVie Inc. ABBV-N.
The fund has returned 5.5 per cent so far this year and 16.8 per cent over the past 12 months. The three- and five-year annualized returns are 26.3 per cent and 15.6 per cent, respectively. The performance is based on total returns, net of fees, as of Aug. 31.
Mr. Cavallo says the health care sector has underperformed the AI-driven technology sector in recent months, but sees more growth potential ahead.
The Globe spoke with Mr. Cavallo recently about some of the stocks he has bought and sold in the health care industry:
Name three stocks you’ve been buying and continue to own
Intuitive Surgical Inc. ISRG-Q, maker of the da Vinci robot used in many different surgical procedures, is a stock we’ve owned for more than 10 years. It has very little competition.
We increased our weighting after a sell-off from its highs earlier this year. The company is at the start of a new product cycle, having introduced its first new machine in several years, which we believe will sustain and accelerate its growth.
It’s also an AI play within the health care sector, given the unparalleled amount of data it has collected in the surgical setting over the past decade plus. So, we think it’s at the start of a really exciting period.
AstraZeneca PLC AZN-Q, one of the world’s largest biopharmaceutical companies known for its oncology, respiratory and other treatments, is a recent addition to the fund. We bought it in July this year.
The stock has suffered in recent years due to several issues, including various fines and settled legal claims, as well as underwhelming results from a key late-stage cancer drug trial. The company appears to be mostly past all of this, and we see improvements ahead, including a lot of exciting drugs in its pipeline.
Once those come out, we think the market will better appreciate the company’s growth potential and that it could easily outgrow its large-cap biopharmaceutical peers.
Insmed Inc. INSM-Q, a biopharmaceutical company [that makes treatments for patients with nontuberculous mycobacteria and non-cystic fibrosis lung infections], is a stock we’ve owned since April, 2024.
One of its drugs recently received approval from the U.S. Food and Drug Administration [for non-cystic fibrosis bronchiectasis]. It’s the first treatment for the chronic condition. Insmed also has other drugs in the pipeline, so we believe it’s going to have more than one blockbuster drug.
The stock has doubled so far this year, but we think it has more room to grow and an opportunity to become a large-cap biotech stock down the road.
Name a stock you sold recently and why
Option Care Health Inc. OPCH-Q, which provides infusion therapy services for various acute and chronic conditions, is a stock we originally bought in April, 2021, and sold last month.
We did well on the name, believing that more of the infusions would be moved to the home, which has happened, but we’ve seen some issues on the cost side creep up in the past six to 12 months.
The company is also going through a chief financial officer transition. We decided to step to the sidelines for the time being.
This interview has been edited and condensed.