Investors find comfort in slow growth
The slow-motion recovery may be frustrating the most bullish investors, but the equity team at Aurion Capital Management believes it provides the market with some comfort.
“It is very difficult to see an overheated or frothy environment, but you have to play the cycle slowly,” said Bob Decker, who runs the firm’s equity mandates with comanagers Craig MacAdam and Gregory Taylor, and equity analyst Mike Archibald.
“Investors are getting rich slowly, but the shift from pure defensive areas to segments driven more by the economy, as well as the preference for income, remain dominant components of investor thinking,” Decker said.
The managers are positioning both the Dynamic Aurion Canadian Equity Fund and the Aurion II Equity Fund in companies that generate enough income to raise their dividends, buy back shares and pay out special dividends.
Taylor highlighted industrials, technology and energy as sectors of focus in 2014.
“These are the next legs of growth,” he said. “Financials really carried the ball at the end of last year, and we think that will continue in the beginning of this year.”
Archibald noted industrials, technology and energy also happen to be most highly correlated to rising GDP.
“That is what we’re forecasting for 2014 and beyond, so they fit the bill from that perspective and a number of others,” he said. “We’re trying to balance having an anchor with yielding stocks and getting real upside in dividend growth. That typically has been represented by these cyclically oriented groups.”
One target is industrial companies generating free cash flow by building mega projects for TSX 60 commodity names such as Teck Resources Ltd. and Suncor Energy Inc. Both funds also have positions in the U.S. technology sector.
“It’s kind of a muddle-through environment where top-line growth is hard to find,” MacAdam said. “So you have to move further down the income statement to find companies that can still generate sustainable bottom-line profit growth and thus free cash flow for shareholders.”