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Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and powered by Canada Life. For today’s Soundbites, we’re talking about opportunities in global equities with Katherine Owen, vice president, portfolio manager with the Global Equity and Income team at Mackenzie Investments. We talked about sectors and regions she likes. And we started by asking about the current market broadening.

Katherine Owen: At the beginning of the year, you definitely saw signs of market broadening. Broadening in sectors, broadening outside of the Mag Seven and broadening outside of the U.S. And we did see that reverse since the start of the Iran war when markets wanted to get more defensive. Now the market is beginning to look past the war. We’re seeing a return to optimism, in terms of economic acceleration in the U.S. and international. In this new, new world of investing, the situation is very fluid. Probably the better way to phrase it is, you’re seeing rotation. The trend is really shifting from sector to sector to sector, or theme to theme to theme, depending on how they how investors view the market environment.

How durable this shift could be

KO: In terms of how durable the shift is, I’m not sure but I think this is the new normal. I think the market environment that we’ve seen over the last few years is faster, much more reactive, much more willing to look forward than worry about what’s going on at the present. Information now is so accessible to everyone. We have computers, we have quants absorbing this data in a flash of a second. Because information is much more accessible, much faster to disseminate, it just means a faster-moving market, which means that we do have to be a bit more nimble, a bit more adaptable to circumstance as they change. We always want to create a portfolio that is resilient through different types of market environments and through different economic cycles.

Sectors she’s watching

KO: When we’re thinking about thematics, one of the most important industries that we are watching closely is consumer staples. We’re being more cautious. Historically, consumer staples — think of companies like Coca Cola, Colgate, Procter & Gamble, Nestlé, Diageo — they can grow year in year out. But what we’re seeing today is that it may be more difficult for these companies to raise prices than in the past. Today a lot of consumers are more stretched. When you think about elasticity of demand, before you could raise prices but you wouldn’t really impact volumes. Today you’re raising prices but you’re seeing an impact to volume or a tradedown to lower-priced goods or even a tradedown to private label. Now there is an impact of raising prices. The pricing power of these companies is not as strong as it used to be.

Names she likes in the current moment

KO: MUFG (Mitsubishi UFJ Financial Group) is one of the largest and one of the best managed banks in Japan. This is a company that would benefit from developments happening within Japan — a lot of it policy driven. Much more stimulative, much more aimed at accelerating GDP growth and accelerating inflation, and also helping increase interest rates, which is positive for Japan. MUFG is very shareholder friendly and increasing their return of capital to shareholders through higher dividends. We like that bank because they are not only benefiting from an improving macro environment in Japan, but also making company-specific actions that will improve the overall profitability of the bank. On AI, we want to invest in the semiconductor companies like the Nvidias, the Broadcoms of the world that actually make the semiconductor chips for AI use. We also want to invest in the picks and shovels, so the companies that are actually building out the infrastructure. Like a GE Vernova, or Siemens Energy that makes the electrical components for the data centres. TSMC manufactures semiconductors for almost all of the leading semiconductor chip makers in the world. TSMC is the leader. They have the best technology, the lowest cost, and they supply something like 60% of the world’s semiconductors. More critically, they supply almost all of the most advanced chips in the world. This is one of the most important — if not the most important — company in the world because they supply semiconductor chips that the world relies on and really can’t function without.

And finally, what’s the bottom line on finding opportunities in global equities?

KO: The market today is extremely volatile. It’s been like a roller coaster. Even year to date, so much has happened. It’s been whipsawed back and forth over so many different concerns. But the worst thing you can do is panic sell at the bottom and then buy back at the top. That is the number one way that investors can destroy their return profile over time or even lose money permanently. So, invest in very high-quality companies that can withstand the test of time. Trust that they can navigate these types of environments. And stay adaptable and nimble to market circumstance as they develop.

Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks again to Katherine Owen of Mackenzie Investments. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.

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