Canadian stock market

    In today’s article we focus on the Canadian equity market, following on the work of Garey Aitken, co-lead manager of the 4-Star Morningstar-rated Franklin Bissett

Canadian Equity Fund. Garey has shared his vision of the Canadian market sector  valuations.

    Garey Aitken’s vision is quite optimistic. He acknowledges that equity valuations are currently of concern for many investors in light of the large positive

move in equity markets coming off the 2009 bottom. In particular, the broad American market index S&P 500 has risen by 180% from March 2009. At the same

time, the main Canadian stock index, S&P/TSX Composite, has not performed as strongly in the past 3-4 years and has risen just 77% from its 2009 bottom. Garey

Aitken expects that the Canadian stock market will offer trend-like returns in the mid to high-single digits over the next several years. He believes that the Canadian

market has a strong potential regardless of the likely weakness of emerging and commodity markets.

Aitken believes that Canadian stock valuations are currently not overstretched. He sees some pockets of expensive stocks but believes that active investment
management would be able to differentiate areas of opportunity vs. areas of vulnerability. Among the sectors with reasonable valuations and good prospects
for growth include financials, energy, consumer discretionary and industrials.    


Among financial stocks, he likes all five big banks and singles out The Canadian Imperial Bank of Commerce (CIBC), the smallest of the Big 5. CIBC represents the largest position in the Franklin Bissett Canadian Equity Fund. Garey Aitken likes CIBC’s business plan, its strong focus on de-risking the business and on the domestic market. According to Aitken, CIBC has strong consumer orientation and client focus, which bode well for the bank’s profitability.

    Moreover, Aitken notes that CIBC’s stock is a relative laggard in the banking group which makes it even more attractive for investors. We have looked at the

banking stocks and found that CIBC’s stock has not yet reached its pre-2009 high price ($107 vs. $96) unlike the other big four banking stocks.

Aitken also likes certain Canadian cyclical stocks from energy and materials sectors. Stocks from the materials and mining sector were under pressure in 2012-

2013 due to weak commodity prices. The Franklin Bissett Canadian Equity Fund has been buying stocks from this sector on weakness in 2013.

    In this sector, Aitken singles out royalty stream and financing companies rather than mining producers. He believes in their business model as profitable

with little to no exposure to operating, capital and environmental costs associated with mining. At the same time, this model retains upside exposure to changes in

commodity prices. Particular companies in this sector, include Franco-Nevada Corporation and Silver Wheaton Corp.

    We at Credential Securities Inc. at the UCU’s Wealth Strategies Group concur with the view that Canadian stocks offer promising opportunities. We also believe

that active portfolio management focused on Canadian stocks by investment professionals can bring results which would meet your particular investment

goals. We would be glad to help you identify appropriate Canadian stocks or equity mutual funds for your portfolio.

Michael Zienchuk, MBA, CIM

Investment Advisor, Credential Securities Inc.

Manager, Wealth Strategies Group, Ukrainian Credit Union Limited

416-763-5575 x204

    Mutual funds and other securities are offered through Credential Securities Inc. Commissions, trailing commissions, management fees and expenses all may

be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual funds and other securities are not

insured nor guaranteed, their values change frequently, and past performance may not be repeated. The information contained in this article was obtained

from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information

and should not be considered personal investment advice or solicitation to buy or sell any mutual funds and other securities. The views expressed are those

of the author and not necessarily those of Credential Securities Inc. Credential

Securities Inc. is a Member of the Canadian Investor Protection Fund.