Illustration by Joel KimmelThe Globe and Mail
Money manager Chris Kerlow employs a “core and explore” investment approach, which combines more defensive, liquid and dividend-paying equities (core) with less liquid alternative assets, such as pre-IPO companies and private real estate (explore).
“Together, they provide a great dual approach of being both defensive and opportunistic,” says Mr. Kerlow, senior portfolio manager and investment adviser with Langsford Wealth Counsel at Canaccord Genuity Wealth Management (Canada) in Oakville, Ont., whose team oversees $886-million in assets.
Even as markets trade close to all-time highs, Mr. Kerlow remains bullish, especially with the U.S. Federal Reserve Board expected to cut interest rates, which could spur economic activity. He uses fixed-income exchange-traded funds for added diversification.
His model portfolio, which includes about 55-per-cent equities, 20-per-cent fixed income and 25-per-cent alternative investments, is up 10.9 per cent year-to-date and 17.2 per cent over the past year. Its annualized return since inception on Oct. 25, 2022, is 14.5 per cent. The performance data are based on total returns, net of fees, as of Aug. 31.
The Globe and Mail spoke with Mr. Kerlow recently about what he has been buying and selling:
Name three stocks you’ve been buying:
General Dynamics Corp. GD-N, the U.S. defence and aerospace company, is a stock we bought on July 9 for US$298 a share. The company tends to benefit from geopolitical tensions. Although it appears that we are making progress with wars in the Middle East and between Russia and Ukraine, there’s a risk of them flaring up again.
We believe the stock is significantly undervalued compared to its peers, such as Lockheed Martin Corp. and Northrop Grumman Corp. We also believe General Dynamics offers significantly better visibility into its earnings. The company has a backlog of more than US$90-billion.
It has very low debt, which gives it the flexibility to increase its capital deployment and take advantage of the Trump administration’s ‘Made in America’ initiatives. That’s complemented by new U.S. legislation that enables businesses to depreciate assets more quickly. The company’s stable cash flows and growing earnings gave it a high score in our models.
Uranium Energy Corp. UEC-A is a stock we purchased on June 23 for US$6.51 a share and added to again on July 9 when the stock briefly dipped below US$6 a share. We’ve been bullish on uranium for a long time and have been waiting for the right opportunity to add exposure to the space.
We acquired the company’s stock after I met with the chief executive officer in May and as a result of the Trump administration’s pro-uranium stance.
We believe uranium will continue to be recognized as the best clean-baseload energy source in the world, with a capacity that wind and solar can’t provide. The growth in data centres will lead to increasing demand for energy. We also like UEC because the uranium it produces is unhedged, unlike Cameco Corp.
Stack Capital Group Inc. STCK-T, the Toronto-based investment holding company, is a stock we bought on Aug. 8 at $13.48 a share. The company has a diversified portfolio of late-stage, high-growth private companies that investors can own through a publicly traded, liquid stock. Its biggest holding is SpaceX [Elon Musk’s space technology company], and it also has made investments in travel company Hopper and cloud-based AI infrastructure company CoreWeave Inc., to name a few.
We like it today, given that public markets appear to be becoming more accommodative to the IPO market. Stack Capital will continue to benefit as more of its companies go public.
Name a stock you sold recently and why
Walt Disney Co. DIS-N is a stock we bought on July 27, 2022 and sold on Aug. 22 of this year. We achieved an average return on the stock, but it was not particularly impressive, given the broader market performance over that time period.
Disney has struggled to break out beyond US$120 a share, which was part of the reason we decided to sell the stock. When the markets dropped in April, we used the opportunity to add Netflix at a discount, which has done quite well for us. There’s some overlapping exposure between the two companies, and we prefer the profitability and growth of Netflix, which we believe is the leading horse in the streaming race.
Although Disney has valuable assets, it’s not growing at a fast pace, and in some parts of the world, it’s actually declining. It’s also a very capital-intensive business, which comes with reinvestment risk and its execution on that hasn’t been the greatest. So, we decided to sell in favour of stocks with stronger earnings visibility and clearer growth trajectories.
This interview has been edited and condensed.