Zach Curry, director and portfolio manager, Greenrock Capital Partners

FOCUS: North American large caps

MARKET OUTLOOK:

Higher-than-expected inflation over the past two years has caused central banks around the world to raise interest rates, putting pressure on consumers through higher borrowing costs. Unemployment rates, however, continue to hover at record-low levels. Additionally, wages increasing along with inflation has resulted in consumer spending remaining fairly resilient.

We believe that inflation rates will continue on their recent downward trend and interest rates will not need to increase much further from current levels. Even if unemployment rates do rise a little bit from here, we think consumers will be able to weather the storm and we will escape a recession (or if we do enter one, it will be shallow and shorter-lived). Any slowdown in consumer spending going forward could also help ease inflation further. Uncertainty in the U.S. financial sector (mainly limited to regional banks) has caused lending to slow from levels at the start of the year. This will also have the effect of reducing inflation, taking some pressure off the need to increase interest rates.

Regardless of what happens in the short term, we invest our client portfolios for the longer term (think five to 10 years) in best-in-class companies and have diversified investments across a number of industry sectors. These companies are stewarded by management teams that have experience over business cycles and have lower than average debt levels, which reduces the negative effects of rising interest rates. The products and services that these companies produce and sell are in demand, and price increases have been able to be passed on to consumers, reducing margin pressure. Broad industry exposure provides diversification as not all sectors rise and fall at similar times in an economic cycle. This reduces the volatility of our client portfolios.

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TOP PICKS:

Visa (V NYSE)

Visa Inc. operates as a global payments technology company. The company serves consumers, merchants, financial institutions, and government entities. The company operates VisaNet, a transaction processing network that enables authorization, clearing, and settlement of payment transactions. It also offers credit, debit, and prepaid card products; tap to pay, tokenization, click to pay; Visa Direct, a real-time payments network. Visa does not issue cards, extend credit or set rates and fees for consumers. Instead, Visa provides financial institutions with Visa-branded payment products that they then use to offer credit, debit, prepaid and cash access programs to their customers. Visa provides a range of value-added services, including fraud mitigation, dispute management, data analytics, campaign management, a suite of digital solutions, and contact center services. 

Canadian Pacific Kansas City (CP TSX)

Canadian Pacific Kansas City Limited, together with its subsidiaries, owns and operates a transcontinental freight railway in Canada, the U.S. and Mexico. The company transports bulk commodities, including grain, coal, potash, fertilizers, and Sulphur. It also transports merchandise freight, such as energy, chemicals and plastics, metals, minerals and consumer, automotive, and forest products. It also moves intermodal traffic comprising retail goods in overseas containers. The company offers rail and intermodal transportation services through a network of approximately 13,000 miles. CP closed the acquisition of Kansas City Southern Railway in April 2023, making it the first and only railroad to serve Canada, the U.S. and Mexico directly. 

Canadian Natural Resources (CNQ TSX)

Canadian Natural Resources Limited (CNQ) is a senior Canadian oil and natural gas company that acquires, explores for, develops, produces, markets, and sells crude oil, natural gas, and natural gas liquids primarily in the Western. It has offshore operations in the U.K. sector of the North Sea, and Africa. CNQ’s balanced mix of natural gas, light crude oil, heavy crude oil, bitumen and synthetic crude oil represents one of the strongest and most diversified asset portfolios of any independent energy producer. The company has transitioned to a long-life low decline asset base through the development of its oil Sands mining and upgrading assets.