Navigating Canada’s equity markets – 2020 in review and 2021 outlook

Insights from Guardian Capital, the Canadian equity manager for the ONE portfolio

While 2020 was a year like no other, in many ways it was textbook when it comes to markets. It showed once again that regardless of market ups and downs, sticking to a clear, long-term investment strategy is the best bet.

Market highs and lows in 2020 were more extreme than usual, with the S&P/TSX plummeting 37% from their February peak, only to rebound 59% by year’s end. Through it all, Guardian Capital, which manages the ONE Canadian Equity Portfolio, navigated the markets to serve ONE’s municipal investors.

Equities play an important role in any investment plan, and the Canadian Equity Portfolio aims to provide long-term investment returns through a diverse and conservatively managed portfolio of Canadian equities.

Guardian’s strategy throughout the COVID market correction was to both take advantage of the sudden drop in market prices and to prepare for the economic recovery that would inevitably follow. Key additions to the portfolio included:

Auto parts manufacture Magna International: It was added to the portfolio during the depths of the market decline at favourable prices. Guardian completed a thorough analysis of the company’s liquidity position and ability to weather a prolonged automotive production shutdown. Magna has a best-in-class financial position when compared to its global peers and is also well positioned to benefit from European, Asian, and North American recoveries.
Boyd Group Services: It was added to the portfolio in the second quarter. The company owns and operates a chain of auto collision repair companies across North America. The company has been closely watched prior to COVID and was added during the market sell-off. Although Boyd is not immune to the current economic weakness, it will emerge with a strong balance sheet relative to peers and will be in a position to add to its footprint. The company is renowned for its acquisition integration and strong operating efficiencies.
Restaurant Brands International: It was added in the third quarter. The company’s franchise business model does not require a lot of capital investment. Organic growth is driven by new restaurant openings and same-store-sales growth at Burger King, Tim Hortons, and Popeyes. We expect the company to recover from a challenging 2020, especially given its international diversification and the positive impact of the vaccine rollout getting people out and on the move again.
Maple Leaf Foods: Guardian Capital likes its longer-term growth potential of this company and anticipates significant growth in the plant-based protein industry in the coming years along with heightened demand for the company’s RWA (raised without antibiotics) and ‘free-from’ preservatives meats.

“Guardian Capital invests in solid companies for the long term,” said Brian Holland, Senior Vice President, Guardian Capital LP. “These are secure investments that have provided long-term growth to the assets of municipalities across Ontario. They are overseen by a team of portfolio managers and analysts who scrutinize holdings and look for opportunities to build a strong and diverse portfolio.”

Looking ahead to 2021, lingering virus concerns will be pitted against the likelihood of re-opening as the vaccine rolls out. Economies have learned to cope with the virus to a greater degree than expected as people and businesses have continued to adapt. This has resulted in continued economic momentum despite the continued case counts. This economic headway has not come without volatility or reversals.

“As the recovery progresses, some shortages or price increases for goods, such as steel, copper, and oil, could create some inflationary pressure. We’ve already seen this in lumber markets,” Holland said. “While Guardian won’t make predictions, our portfolio managers and analysts are prepared to respond proactively to changing conditions, continually looking for opportunities that will stand the test of time.”