Jeff Mo, portfolio manager at Calgary-based Mawer Investment Management Ltd., oversees about $2.7-billion in assets. Illustration by Joel KimmelThe Globe and Mail
Money manager Jeff Mo says he’s seeing “schizophrenic optimism” in the markets that’s making him more cautious about what lies ahead.
“The [economic] environment is getting increasingly fragile, but the general trend in the market is that it wants to go up – that’s the optimism part,” says Mr. Mo, portfolio manager at Calgary-based Mawer Investment Management Ltd., who oversees about $2.7-billion in assets.
“Our general view at Mawer is to be a little bit more cautious when others are more greedy and to be a little bit more greedy when others are cautious,” adds Mr. Mo, borrowing the well-known phrase from Warren Buffett. “But to be clear, I’m not saying there’s raging optimism, because then we’d be quite fearful.”
It’s not just the ongoing war in the Middle East and disruption of energy markets that have made Mr. Mo more cautious, but also the upcoming review of the Canada-United States-Mexico Agreement, or CUSMA, which could bring more economic uncertainty.
“The market isn’t necessarily grounded in estimating valuations or calculating probabilities of economic growth,” says Mr. Mo, who manages Mawer U.S. Mid Cap Equity Fund and Mawer New Canada Fund.
Mawer U.S. Mid Cap Equity Fund is up 17.3 per cent over the past year. Its three-year annualized return is 11.5 per cent. Since its inception in September, 2021, the fund’s average annualized return is 5.6 per cent.
Mawer New Canada Fund, which launched in 1988 and has been mostly closed to new investors since 2004, is up about 20.5 per cent over the past year. Its three-year annualized return is 13.7 per cent and its five-year annualized return is 5.3 per cent. Since its inception, its average annualized return is 12.7 per cent.
The performance of both funds is based on total returns, net of fees, as of April 28.
The Globe spoke with Mr. Mo about three stocks he’s been adding and one he recently trimmed:
Name three stocks you’ve been adding to your portfolio.
Enerflex Ltd. EFX-T, one of the world’s largest manufacturers of natural gas compression equipment, is a stock we bought between December last year and February this year. It represents about 3.5 per cent of the portfolio today.
The company’s base market is improving as demand for natural gas across North America and globally is increasing. A small part of its business is also providing reliable backup power for data centres, which could become more material.
The company has a new chief executive, Paul Mahoney, who started in September. He’s taken an engineering/operational lens to the business. Historically, the company has had uneven execution and he has strengthened it by improving margins and streamlining its strategy.
The stock has more than doubled since he took over. While some might say the juice has been squeezed out, we think the valuation is still quite reasonable – trading at about 17 times 2027 earnings – given the company’s growth prospects.
CACI International Inc. CACI-N, the Reston, Va.-based IT defence contractor, is a stock we bought in June, 2023, and added more in early April this year on a downturn. It represents about 3.5 per cent of the portfolio.
Although CACI started as a traditional IT contractor – and that’s still the biggest part of its business – a growing piece is in advanced technologies such as cybersecurity, space-based communications and electronic warfare. The use of drones and electronic jamming has become very front and centre in recent wars, and CACI is one of the leading players in this realm of technology.
It’s starting to show stronger organic growth. We like the management team’s increased strategic focus and its agility in procurement. We think the valuation is still quite attractive, trading at about 16 times 2027 earnings.
Lumentum Holdings Inc. LITE-Q, which makes high-end lasers, is a company we bought in February.
Traditionally, its largest market was for telecommunications fibre optics, but it’s increasingly getting into data centre fibre optics. It has a strong competitive advantage in highly reliable laser optics, making it well-positioned for the explosion in demand from AI data centres. We think it will be a leader in this area given its history of doing undersea fibre-optic cable lasers.
The company has a very high valuation, trading at 34 times 2028 earnings, but we believe that might be conservative. It’s a higher-risk name, but also higher potential. Still, it’s a much smaller holding in our portfolio, at about 1.5 per cent.
Name a stock you sold recently.
Warner Music Group Corp. WMG-Q, one of the world’s largest music labels, is a stock we trimmed earlier this month to about 1 per cent of the portfolio, down from 1.5 per cent. We originally bought it in September, 2021.
We’re somewhat worried that the rise of AI music will cause the value of human-recorded music to decline. Similar to 25 years ago, when the value of recorded music declined because of internet piracy, you can argue that AI-generated music is a form of piracy. Our investment has been largely flat since we started buying it.
This interview has been edited and condensed.