I had the privledge the other day to have breakfast with vetran fixed income investor Dan Bastasic. Dan has recently moved to IA Clarington from Mackenzie Financial. He now manages a corporate bond, equity income, and strategic income mandate. Dan has a great history of performance and risk management.
Here are some of Dans comments and points I took away from the breakfast;
- Right now the risk is the Fiscal Cliff. We are already feeling it. We will likely see a mini cliff.
- Housing in the US is growing to a million startups.
- Government bonds are expensive and offer little yield, but it is very hard to just leave them.
- Dan has outperformed the TSX by 8% over the last 6 months with 50% of the risk.
- Dans funds are always top decile and right now is 5th out of 500 funds.
- Dan is proactive in managing money stating - "I wan't to know what will go wrong, and how it will effect my investment thesis"
- "We cant just buy cheap stuff and hope they go up anymore. The next 5 - 10 years are going to be extremely rocky."
- China's economy is no longer growing at 8%.
- "The US growing at 1.7% is a bad number but they are in relatively good shape. Manufacturing is moving back, housing is improving, the auto sector is improving, and consumers are reloading."
- China is still a risk, we are still concerned. We don't look at goverments particularly, we look at things like electricity, automobile, and steel consumption.
- "Are high yield bonds in a bubble?...I don't think so. Yields are as low as ever. Real inflation is upwards of 8%. stocks may get you 9% but you have twice the risk and goverment bonds are negative. We see high yields have one of the best upside, with least amount of downside potential."
- Our Team: "We are stock and bond people and we get to know our companies really well. Part of our success has been buying stock in a companies bond we used to own or buying bonds in a companies stock we used to own."
- What we like: "Energy, we have been playing natural gas for the last 7 months. Companies like Enbridge and Trans Canada are clearly expensive but I get a 4%-5% dividend, 4% growth and these are still pretty solid companies. We think 80% of REITs are overvalued. We like auto companies like Magna and Bayner. We expect stocks to return around 7-8% next year and high yields to give us 8%. I still dont think we should get out of our high quality dividend paying stocks."
- "Goverment bonds are as overvalued as they have ever been and very risky."
- "Interest rates will not go up quickly. 200 years of data in government bonds tells us that it takes 15 years to go from peak to trough or vise versa"
- 50% of the S&P has a dividend yield higher than goverment bonds and the S&P 500 is the most diversified index globally.
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