Jason Del Vicario, portfolio manager, Hillside Wealth Management, iA Private Wealth

FOCUS: North American and global growth stocks 

MARKET OUTLOOK:

Equity markets have continued to be volatile through the end of 2022 and into 2023. Of late, both bonds and stocks have performed well. Our best guess is that central banks are going to keep raising rates until something “breaks.” Our sense is that we are already in a recession, which won’t be confirmed until later. The big question is how far will central banks push monetary policy in the face of slower economic activity and rising unemployment? 

While it’s fun to speculate about the short-term decisions of central bankers and equity market direction, these are out of our control. At Hillside we focus our attention on what we can control, namely sourcing and researching high-quality businesses to own for clients. Investors are being put through a significant test where their behaviour and actions will either destroy wealth (panic selling) or set themselves up for success during the next bull market phase (hold and add). 

The investors’ mindset is different when they think and act like business owners. We want to focus on the fundamentals of the businesses we own versus the market price that “manic Mr. Market” is willing to pay for these businesses in the short term.

We conduct a “look through” analysis semi-annually for our clients highlighting the metrics of “HillsideCo” which is a weighted average of the 25-30 businesses we own. Recently the metrics were; cash earnings yield eight per cent, three-year CAGR cash earnings 26 per cent, debt/equity 0.5, cash earnings return on equity 63 per cent.  If you were presented with an investment opportunity with a cash yield of eight per cent, growing at 26 per cent for the past three years without much debt and fantastic re-investment opportunities how would you behave?  Would you panic sell, hold or add? 

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TOP PICKS:

Premier Anti-Aging (4934 TYO)

This is a one per cent weight for us bought at 3,800 yen spring of 2022. 

It has a market-leading skin care product in Japan Duo and a subscription model which we like as customers pay upfront. The stock is down a lot since we bought with a one per cent conviction weight. Its profits have fallen in the short term; if we were convinced this was as a result of short-term reasons we’d add to a position down this much. We are however not convinced and have decided to give the position more time and learn more about the company.

(KSPI LON)

I’ve spoken about this company in the past. We continue to be extremely impressed with how this company operates and performs. The risk here is mostly geopolitical which is a risk we can’t control. If this business was in a developed country it would probably be a five per cent conviction weight for us. Instead, it’s a 1.5 per cent weight which has grown to over per cent. We originally bought shares at $110 in January 2022 and added at $70 (May 2022) and $58 (May 2022).

Plus500 (PLUS LON)

Plus500 is a cash cow but doesn’t meet our criteria that a business we own be founder-run and owned. We make very few exceptions to this rule. Having said this Plus500 is a cash cow and until recently returned a huge chunk of its excess cash flow in the form of dividends and buybacks. Recently this has fallen to 50 per cent and it remains to be seen what returns will be generated on these investments and efforts to diversify. It is cheap. A three per cent conviction weight. We recently trimmed at these levels and last added at 12.50 GBP in late 2021.