With weaker demand for Canadian natural resources, advisors looking for higher returns for their clients should turn their attention to global opportunities, according to Dean Orrico, president and chief investment officer, at Toronto-based Middlefield Capital Corp.
Although Canadian securities have a place in an equity-focused portfolio, there are better opportunities abroad, said Orrico, who spoke at the Canadian Institute of Financial Planners (CIFPs) annual conference in Niagara Falls, Ont. on Monday.
“[Canadian equities] really do serve as an anchor in our equity portfolios,” said Orrico. “[However] where we’re really looking for beta or growth is outside of Canada.”
Orrico is particularly optimistic about the U.S. economy, which has entered into a recovery phase.
Specifically, sectors such as real estate, financials and industrials are poised to do well south of the border for several reasons.
First, with the housing and labour markets improving more people will be moving out of apartments and into houses, he said.
Second, confident American consumers are likely to start borrowing more from U.S. banks and credit card companies than Canadians.
And third, the nascent economic recovery will spell increased demand in a number of important industries, such as chemicals.
Europe is also heading into recovery, although investors may have to be a little patient to see the benefits, Orrico said. The European market will continue to see low or even negative returns over the next 24 months; however, economies in the region should begin to improve after that.
A specific sector in Europe that Orrico favours is health care. Many European-based pharmaceutical companies have low valuations because of the generally negative sentiment toward European equities. However, Orrico noted that sales and earnings for these firms tend to come from around the world.
“We think that’s a one-two combination to get exposure to high-quality, liquid companies,” he said.
Orrico is also optimistic about the energy sector. He suggested that the economic recovery and general oversupply of shale gas and oil mean that equity investors can find positive returns in the energy infrastructure and oil and gas sectors. Regardless of the direction of oil and gas prices, he says, there will still be a need for infrastructure projects such as pipelines and power generators. Furthermore, while natural gas prices has been the “suffering child” of commodities since the downturn, said Orrico, that is about to change. Between spring of 2012 and today, the price of natural gas has doubled and he expects more healthy increase in future as demand increases.