Instead of worrying about short-term noise in the market, investors should focus on long-term outcomes, says Sandy McIntyre, vice-chairman of Sentry Investments.
“I encourage people to think about where they need to be five, 10 or 20 years down the road, and how they’re going to get there,” McIntyre told investors at an event hosted by Raymond James last week at the Calgary Petroleum Club.
Yet increasingly, he says, people are in portfolios that will not let them reach their goals.
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“The North American regulatory environment is driving to risk-based solutions, as opposed to solutions that are actually going to work for investors over their investment life cycle,” he says.
And, this is happening against the backdrop of limited local options. McIntyre says the domestic market overemphasizes industries such as oil and gas, materials, and banking. “Our investment alternatives are disproportionately focused on industries that a conservative investor should not have the majority of their money in.”
Instead, he says investors should look outside Canada, or at lower-profile sectors from within our country, such as consumer products, retail, technology, telecommunications and utilities.
“It’s not sexy stuff, but it works,” he says. “We are way too fixated on oil and gas in this country. They are highly volatile commodities, and the businesses that produce them are huge consumers of capital. The return on equity in the industry is chronically bad, and the volatility of share prices is chronically high.”
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The oil and gas industry’s volatility-to-ROE ratio runs at 3.5 times, he notes: in comparison, volatility-to-ROE for telecommunications is 0.9 times.
“Low volatility-to-ROE, buy and hold; high volatility-to-ROE, trade.”
Having said that, McIntyre says we are “entering a buy zone” when it comes to the oil and gas industry.
“There are a number of good companies that understand the business and understand protecting shareholder value. These companies generally have stable, high-quality assets, low financial leverage, and management that owns the same securities as you—common shares, not options.”
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McIntyre couldn’t say what impact Tuesday’s election of a majority NDP government in Alberta will have on the oil and gas industry. “Capital moves to where it can find a return. If it can find a return here, it will stay here.”
For investors in general, McIntyre sees stocks as a long-term inflation hedge—“provided you don’t overpay for them. It’s not price—it’s valuation. Valuation is important.”
In periods of high inflation and high interest rates, he notes, businesses can’t grow much in real terms, and share valuations should be cheap. Now, “we are in a period of low inflation and low interest rates, and growth assets should be more highly valued in this type of an environment. […] I believe we are in a secular bull market, and secular bull markets last a long time.”
McIntyre recommends advisors use “fewer fund companies, but a unique value proposition for each,” and using the purchasing power of a client’s capital to access lower-fee alternatives, driving the cost structure down.
He also looks to the example set by pension fund managers, who have brought in long duration alternative asset classes, such as real estate, infrastructure and private equity. “My belief is that people who are investing for their lifetime should look at some of these alternative asset classes, and include them as part of their portfolio solutions.”
This story originally appeared on our sister site, Advisor.ca.