Ken O’Kennedy, chief investment officer at Vancouver-based Dixon Mitchell Investment Counsel Inc.The Globe and Mail
Money manager Ken O’Kennedy has been getting more defensive in his portfolio in recent months amid the global tariff war and rising threat of a recession in Canada and the U.S.
“We’re revisiting our bear and maximum-loss cases [to prepare] for an expected decline in earnings and seeing where that shakes out in terms of valuations,” says Mr. O’Kennedy, chief investment officer at Vancouver-based Dixon Mitchell Investment Counsel Inc., who oversees about $7-billion in assets.
It means adding a bit more cash and bonds to his portfolios, but he’s also looking to buy more recession-proof stocks and those for which tariffs will have little or no direct impact. Some examples include garbage and recycling company Waste Connections Inc. WTN-T, precious metal streaming company Wheaton Precious Metals Corp. WPM-T and scientific instrument maker Thermo Fisher Scientific Inc. TMO-N. He’s also been trimming stocks that are affected by tariffs such as Apple Inc. AAPL-N.
Mr. O’Kennedy says he looks for stocks based on five qualitative factors: the industry in which the company operates, its competitive position, its business model, its management team and its risk through an environmental, social and governance lens.
The strategy has helped his team achieve double-digit returns in recent years. Dixon Mitchell Total Equity Portfolio, which has $1.7-billion in assets under management, has returned 10.9 per cent over the past year. Its three-year annualized return is 11.3 per cent, while its five-year annualized return is 19 per cent. The returns, as of March 31, are gross of fees, which average approximately 0.6 per cent.
The Globe spoke with Mr. O’Kennedy recently about what he’s been buying and selling:
Name three stocks you own today and why.
Heico Corp. HEI-N, a U.S. aerospace and defence company, is a stock we bought a couple of years ago and added to in January and throughout the first quarter. Our average purchase price is US$234 a share.
The company had an off quarter in December last year, which gave us an opportunity to buy the stock. It’s a remarkable success story. The Mendelson family that runs it, a father and two sons, took control of the business in the early 1990s and transformed it from US$25-million in annual revenue to just shy of US$4-billion today. It has a very strong, competitive position in its industry.
The crown jewel is its Parts Manufacturer Approval business, which enables companies to manufacture alternative OEM [original equipment manufacturer] parts, similar to a generic drug. It’s somewhat cyclical because it’s tied to airline traffic, but we believe it’s an incredibly well-run business. It has done close to 100 acquisitions and there have been no writedowns or impairments. It’s always been an expensive stock, implying it has a lot of growth potential. And given that the two sons are in their mid-50s, there’s still good runway with this management team and this business.
Meta Platforms Inc. META-Q, the company behind Facebook and Instagram, is a stock we bought in the first quarter this year at an average price of US$594 a share. It’s the first time we’ve owned this stock.
The business has demonstrated considerable adaptability and strong execution over the years, despite various controversies. It holds a strong competitive position, underscored by a massive user base. It also has a formidable advertising business across its social platforms.
Its Reality Labs business is losing a significant amount of money each year, but if it starts to mitigate those losses, it could unlock substantial value. In the technology space, we prefer Meta over a chip company because we think it has more capacity to throttle back its capital expenditures.
Boyd Group Services Inc. BYD-T, which operates vehicle collision repair centres across North America, is a stock we bought in the fourth quarter of last year at an average price of $213 a share.
We really like this little business. It has done a good job of navigating a difficult environment, with rising insurance costs that have reduced the number of claims industrywide. It has been a great consolidator of smaller mom-and-pop shops and improving efficiencies because it has relationships with the big insurers. Its acquisition strategy has been successful. We think industry conditions will improve in the next year or so.
Name a stock you sold recently.
Alphabet Inc. GOOG-Q, the company behind Google, is a stock we trimmed in the first quarter by about 44 per cent to a 4.2-per-cent weighting in our equity portfolio, down from about 7.5 per cent.
We think the company is facing a few issues, including the rise of ChatGPT, which is pulling users away from Google’s search engine. I don’t think it’s an immediate threat, but something that could come to roost in the next few years. I also think its ability to pivot isn’t as strong. We like Alphabet’s management, but we decided to trim our position to buy Meta.
This interview has been edited and condensed.