The Canadian market is rather narrow at the best of times. This is why so many of the large-cap Canadian mutual funds that you see, whether they’re labelled “growth”, “value”, or “growth at a reasonable price” (whatever that means) mostly own the same stocks.
Given the rising rate/China crumbling environment that has gripped us of late, our market just got a whole lot narrower. Gold is tanking, base metals are on a precipice, REITs are getting smoked, and now the Telecom space is sinking into the doldrums. What’s a money-manager with billions of dollars under management to do?
The S&P/TSX 60 essentially comprises the pick-list for most of these large-cap portfolio managers, and since the beginning of June just 11 of the names in this index have posted a positive return. It’s safe to assume that several of these names have served as a destination for the cash that has come out of the afore-mentioned sectors.
The most logical of these positive performers is Shoppers Drug Mart (TSX:SC). Shoppers, with its 7% return over the past few weeks, is pushing its 52-week high as its underlying business isn’t impacted by any of the macro events transpiring.
Also doing well in this environment are businesses that can be expected to thrive in an expanding economy, which rising interest rates imply. Magna International (TSX:MG) is a stock that is on absolute fire as its economically-sensitive business is well positioned for an improving U.S. auto market.
Seemingly, another logical destination for domestic fund managers has been Brookfield Asset Management (TSX:BAM.A). BAM lies at the top of a network of assets that serve as the backbone to economies around the world. This portfolio is second to none and over the long-term can be expected to provide the mother ship, and its owners, with an attractive return. Admittedly however, there is some interest rate risk embedded within the BAM model and therefore the company is not likely to be left completely unscathed should rates continue to move higher.
Over the long-term, it’s tough to go wrong investing in high quality businesses. You tend to win when markets roll-over and at worst, participate when they heat back up again. We’ve been in a roll-over type period and these high quality names are clearly winning.
Because of our market’s disproportionate exposure to resource stocks, which are taking the brunt of the one-two macro punch currently playing out, Canadian investors have had a tough go of it thus far in 2013. To help you step away from the resource space and into more high quality businesses like the one’s mentioned above, the Motley Fool has prepared the special FREE report “3 U.S. Stocks that Every Canadian Should Own”. Click here now to download this report at no charge.
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Fool contributor Iain Butler owns shares in Sunlife Financial. The Motley Fool has no position in any stocks mentioned at this time.