Denis Taillefer, portfolio manager at Caldwell Investment Management Ltd. in Toronto.The Globe and Mail
Although there are signs the Canadian and U.S. economies may be weakening, money manager Denis Taillefer has a more positive view of the stock market, including in the small- to mid-cap space in which his investments are focused.
“We’re starting to see a lot more opportunities in different parts of the markets,” says Mr. Taillefer, portfolio manager at Caldwell Investment Management Ltd. in Toronto, who oversees about $300-million of his firm’s more than $1-billion in assets under management (AUM).
Mr. Taillefer points to declining interest rates, increased government spending and more growth in the red-hot artificial intelligence sector as tailwinds for the market heading into 2026.
His investment team runs fairly concentrated portfolios of about 15 to 25 stocks, using both qualitative and fundamental analysis. The goal is to find value companies showing positive momentum. And although his firm does own some large-cap stocks, the focus is on small- and mid-cap companies that may have attracted less investor attention.
“There’s more potential upside to stories that are not quite as well known to the Street. And if you get ahead of that, you can do very well,” he says.
Mr. Taillefer oversees Caldwell Canadian Value Momentum Fund and Caldwell U.S. Dividend Advantage Fund, with a combined $243-million in AUM.
As of Oct. 31, Caldwell Canadian Value Momentum Fund, Series F, has returned 24.4 per cent year to date, 31.1 per cent over the past 12 months and has a five-year annualized return of 14.3 per cent. Its top three holdings include Enerflex Ltd. EFX-T, CAE Inc. CAE-T and AtkinsRéalis Group Inc. ATRL-T.
Caldwell U.S. Dividend Advantage Fund, Series F, has returned -0.4 per cent year to date, 1.9 per cent over the past 12 months and has a five-year annualized return of 10.5 per cent. Its top three holdings include CBOE Global Markets Inc. CBOE-A, Broadcom Inc. AVGO-Q and Interactive Brokers Group Inc. IBKR-Q.
The funds’ performances are based on total returns, net of fees.
The Globe spoke with Mr. Taillefer recently about what he’s been buying and selling.
Name three stocks you’ve been buying.
Vertiv Holdings Co. VRT-N is a stock we bought in May for US$93.29 a share. The Westerville, Ohio-based company provides digital power management solutions for critical infrastructure and thermal management for data centres. It’s a leader in both areas.
We see significant growth potential in the liquid-cooling solutions it provides for data centres, which help prevent them from overheating. The company is well-positioned to benefit from the rapid growth in AI spending, particularly through the construction of additional data centres to keep up with demand.
A risk for Vertiv is an overbuild of data centres, but we think we’re still in the early innings of AI capital expenditures, and that’s a much longer-term risk.
CAE Inc. CAE-T is a stock we started buying in late June and added to in October. Our average cost is $39.37 a share.
Montreal-based CAE is the global leader in providing full-service pilot training and simulation aviation services. We really like this company for a few reasons. First, it’s a global leader in simulator manufacturing. On the training side, it will benefit from the significant wave of pilots retiring and the growth in new aircraft deliveries, which will require new training programs. It should also benefit from countries spending more on defence. Plus, the company has a new management team focused on driving returns on invested capital.
Major Drilling Group International Inc. MDI-T is a stock we started buying in June and added to in October. Our average cost is about $10.71 a share.
The Moncton-based company specializes in drilling services in the mining industry. Drilling for gold and copper represents about 80 per cent of its revenue. The stock hasn’t done much for the past few years, but as we’re seeing much better commodity prices, exploration activity is expected to pick up, including among junior mining companies.
Major Drilling should benefit from exploration dollars returning to the market. We also think commodity prices are sustainable at current levels, especially copper, given its role in the digitization of our economy.
Name a stock you sold recently.
Constellation Software Inc. CSU-T is a stock we sold in August at $4,722.84 a share. We bought it in October, 2023, at $2,855 a share. We sold it before chief executive officer Mark Leonard announced in late September that he was stepping down, [which contributed to the stock’s recent sell-off]. The stock had reached 40 times forward earnings, which is pretty expensive for any stock.
We really like the company; it’s very well run. We like what it does: consolidating vertical software markets. But the stock has been losing momentum. Some headwinds are building in that software space. AI can be a value-add to a software platform, but it can also be a massive disruptor for certain platforms.
So, given that it was losing momentum and getting expensive, we sold it, feeling that there were better opportunities elsewhere.
This interview has been edited and condensed.