Rob Cavallo, senior portfolio manager at RBC Global Asset Management, says a handful of stocks in sectors such as technology and energy have driven markets near all-time highs. Illustration by Joel KimmelThe Globe and Mail
Money manager Rob Cavallo is monitoring market risks, including rising inflation and interest rates, growing debt and high market valuations.
But the senior portfolio manager at Toronto-based RBC Global Asset Management sees many long-term investment opportunities amid the uncertainty.
“There are some things that could trip up the market. But, generally speaking, we still feel that we’re in a reasonably good position here. We don’t feel that we’re at the end of the cycle, but more mid-cycle,” says Mr. Cavallo, who co-manages more than $13-billion across various growth strategies as part of RBC’s North American equities team.
Although some major indexes have been trading close to all-time highs despite market volatility, Mr. Cavallo says a handful of stocks in sectors such as technology and energy have driven the climb.
“It’s a market in which it could be very easy to be left behind,” he says.
Among those laggards, Mr. Cavallo looks for stocks that may have lost ground but that he sees growing.
“Fortunately, we’ve done relatively well,” says Mr. Cavallo, who co-manages a handful of funds with Marcello Montanari, including the flagship RBC Life Science and Technology Fund, a growth-focused portfolio.
The fund (Series F) has returned 26.4 per cent over the past 12 months. The three- and five-year annualized returns are 30 per cent and 18.9 per cent, respectively. The performance is based on total returns, net of fees, as of Sept. 30.
The Globe spoke with Mr. Cavallo recently about some of the health care and technology stocks he has bought and sold.
Name three stocks you’ve been buying.
Vertex Pharmaceuticals Inc. (VRTX-Q), a large-cap biotech company, is a stock we bought in the late summer. We’ve held it before.
Historically, it has focused on cystic fibrosis treatments and dominated that area of medicine. The company is moving into a second vector, building a portfolio for rare and genetic kidney diseases.
It’s still early, but 2027 will be an important year from a data and commercial perspective, and we don’t think the stock’s valuation captures that yet.
We don’t see a short-term catalyst that will create a step change in the share price, but we think more of it will be realized in the stock over the next 12 to 18 months and we’re pretty positive.
KLA Corp. (KLAC-Q), a semiconductor equipment manufacturer, is a stock we’ve held for years and bought more of in late summer after the stock pulled back significantly from its late-June highs.
The company focuses on process control technology that chip foundries will use to monitor their chip production and is a dominant player in that space.
This year was a bit slower for some of its key end markets, but we think it will start growing again in 2027 faster than the overall industry. It’s our favourite name in the equipment group.
Bristol-Myers Squibb Co. (BMY-N), a global specialty biopharmaceutical company focused on treatments for cancer and cardiovascular diseases, is a stock we started buying in late summer. We also held it previously.
Over the next couple of years, the company will lose some of its patents. Although that has been a negative for the stock, we think the Street is underappreciating how its pipeline is shaping up. The company has had some missteps in recent years, but several clinical trial results over the next 12 months could help de-risk the stock.
Name a stock you sold recently.
Stryker Corp. (SYK-N), a medical device company operating in the global orthopedic market, is a stock we sold recently. We held it for a couple of years before finally exiting in late summer.
The company’s growth has slowed from low double digits to single digits. It’s also had a few hiccups, including a recent cyber breach and a change in its chief executive officer.
There are just too many question marks right now. It’s a high-quality company we’d be interested in owning again at some point. We just don’t think there’s enough visibility over the next few quarters for us to continue holding it.
This interview has been edited and condensed.