Hosted by CFA Society Toronto, the sixth annual Equity Symposium, held on 5 February 2020,  at the TMX Broadcast Centre,was a sold-out event featuring eight distinguished leaders in the investment profession. The speakers shared their investment process across a diverse range of topics, and each concluded with an investment idea pitch.

Tech is gravitating to the centre of our investment universe

Jeremy Yeung of CI Investments made the case that the development of new technologies will have a profound impact on our lives and the investment universe.

5G networks, which are 100 times faster than current networks, will supercharge connectivity in our lives. The mass explosion of new content will be aggregated in a cloud and analyzed by artificial intelligence algorithms, to draw insights on how to continually improve and enhance services and meet the demands of our modern lifestyles.  Tech will also disrupt the global equities market. Companies across all sectors will need to adopt new technologies and re-invent themselves to stay competitive. Amazon is a prime example of a company that continually reinvents itself to expand its market share. Originally an online bookstore, it began selling other goods, further diversified with Amazon Web Services in 2006 and Amazon Studios in 2010, and now has pivoted into healthcare.

Top investment idea: AMD

Advanced Micro Devices (NASDAQ: AMD) stands to gain handsomely from the tech revolution, which will stimulate growth in the data centre market. With gross revenue margin between 60 per cent and 90 per cent, data centre revenue is highly profitable for AMD. Lisa Su, the newly appointed CEO, has made transformational changes and rightsized the company. AMD has become even more attractive as it recently enhanced chip architecture, which dramatically improved production.

A primer on ever-changing emerging markets

Jennifer Delaney of BlackRock shared key insights into investing in emerging markets. Emerging markets are positioned to deliver growth for decades to come, despite some short-term headwinds including a strong U.S. dollar, high correlation with commodities, and exposure to idiosyncratic events (such as the U.S.-China trade war and COVID-19). Key attributes unique to emerging markets are that the country allocation is the largest contributor to performance and volatility, and the emerging markets investment universe is in a constant state of flux.

Investment approach

BlackRock’s country allocation framework is based on the theory that emerging markets are dependent on foreign capital investment and, therefore, are highly cyclical. This cycle follows three stages:

1. Currency weakness causes a selloff and rise in bond yields.

2. Economic healing then occurs when competitiveness improves and exports pick up.

3. Finally, an influx of foreign investment causes markets to overheat.

The MSCI Emerging Markets index includes 26 countries, so selecting countries during the economic healing phase is the most important driver of a risk/return profile. Finally, staying on top of current news is critical since the emerging markets universe is constantly changing. The benchmark’s allocation to Chinese equities has grown from 10 per cent to 30 per cent in the last decade, which is why BlackRock has opened offices in Hong Kong and Shanghai.

Banking on behavioral bias

Studies have shown that, over the last 20 years, acting on behavioural biases has caused investors to underperform the S&P 500 by a stunning 1.5 per cent per annum. Chris Kerlow of GMP Richardson presented ideas on spotting and overcoming the emotional and cognitive biases that plague the investment community.

Kerlow manages a purpose behavioral opportunities fund, which is the first of its kind in Canada, with the aim of profiting from market inefficiencies driven by emotional biases. To monetize the fear of missing out, the fund takes contrarian positions on crowded trades (i.e., crypto currencies, cannabis ETFs, and Tesla) by using options. The fund also takes advantage of short-term overreactions to earnings and market news.

Emotional biases are much harder to overcome than other kinds of bias; to do so, investors should step back, reduce media consumption, and diarize their investment decisions for further reflection. In order to avoid emotional biases, Kerlow advised investors to think about their future selves and to make long-term goals, in addition to creating and following a systematic investment plan.

Kerlow recommended looking into JCI, 3D Systems, Shopify, and Autodesk.

A long-term approach to international investing

Richard Jenkins, chairman and managing director at Black Creek Investment, discussed his approach to international markets. Jenkins is agnostic to country and sector allocation; the first step in his process is identifying market share leaders that invest heavily into R&D. This criteria filters a potential 55,000 companies down to about 1,100 candidates. His next step is to select companies that have been deeply mispriced by the investment community. Black Creek conducts extensive research that includes over 200 interviews per year; revenue and earnings projects for the next 10 years are also considered. The final result is a concentrated portfolio with significant positions in 25 to 30 companies.

Top investment idea: STMicroelectronics

STMicroelectronics (NYSE: STM) is a French-Italian multinational that is a market leader in the kind of semi-conductors used in high-speed trains. STM also manufactures microcontrollers essential in electric cars. In 2022, the EU will introduce penalties for companies still manufacturing cars with a combustion engine, and combustion engine cars will be completely phased out in some European regions by 2030; so, the demand for electric cars and their key components is bound to grow.

The Case for alternative investments

Dennis Mitchell, CEO and CIO of Starlight Capital, made the case for alternative assets as a great diversification asset to add to your portfolio. Mitchell recently launched a global infrastructure fund and a global income fund, with a focus on irreplaceable infrastructure assets and industrial real-estate.

Top investment idea: Americold Realty Trust

Americold (NYSE: COLD) is a market leader in providing temperature-controlled storage, which is a mission-critical service for global food producers and food distributors in the U.S. Americold also provides distribution and supply chain management services to its customers, and is the only publicly traded cold storage REIT in the world. Because the storage industry is fragmented, clients depend on Americold as switching costs are prohibitively high. At 26 times price-to-free cash flow, Americold trades at a premium to traditional REITs and the business model is more comparable to that of a data centre. In the next 24 months, Americold has tremendous potential to expand in Europe as global interest rates are historically low, which benefits the heavily levered real-estate portfolios.

Seizing opportunities in Canadian equity markets

Next, Mark Tredgett, co-founder of Vantage Asset Management Capital, explained why inefficiencies exist in small- to mid-cap Canadian equity markets, and how to benefit from this.

A growing preference towards passive investing in Canadian equities creates opportunities in the small- to mid- cap market segments, since smaller companies that are not part of many indices are often overlooked in analyst coverage. Furthermore, liquidity has been drying up due to a general shift away from Canadian equities. This situation is generating opportunities to profit from mispriced assets, especially since Canadian equity is cheaper relative to the U.S. market, based on price-to-earnings ratios.

Top investment idea: Westaim Corporation

Westaim Corporation (WED) is a Canadian microcap holding company with a significant stake in Houston International Insurance Group and Arena Group, both of which are U.S.-based property and casualty insurers. Westaim currently trades at a 40 per cent discount to the net asset of its holdings, possibly because of its size and illiquidity. Tredgett sees a high upside when one of its businesses is either sold off or goes public.

A quantitative approach to reaping alpha

Benjamin Thorek, associate portfolio manager at Waratah Capital, provided a quantitative-based example to illustrate the essence of a long/short fund. Exposure to general market volatility is hedged away as short positions are layered on, so that only company-specific alpha remains.

Thorek shared a long position in Thomson Reuters and a short position in Factset as examples of his best ideas.

The main revenue drivers for Thompson Reuters (TSE: TRI) includes news, tax and accounting, and legal services; most of these professional services are indispensable, with high rates of re-occurring business. Westlaw, for example, is Thompson Reuters’ comprehensive workflow service for legal corporate and tax professionals, and 90 per cent of this business is reoccurring. In 2018, the company eliminated $430 million in corporate costs and invested in machine learning and AI tools. Thorek suggests that there is a 30 per cent upside, with only a 10 per cent downside in the near term.

Factset (NYSE: FDS) is a financial data and software company that caters to active managers. Factset is facing slow organic growth, declining margins and an onslaught of structural changes. Declining profitability is linked to a declining user base, a trend driven by a shift away from active investing. The implementation of MiFID II has had a negative impact on Faceset’s revenue in European markets. There is a chance that MiFID might jump the pond as Wall Street is driven to operate in a standardized regulatory environment, which would impact 60 per cent of Factset’s client base.

Find love in investing

Our last speaker, but not least, was Terver Scott, who recently launched Tidefall Capital. Scott’s portfolio is concentrated with a typically longer investment horizon of 10 years, which enables him to get a deeper understanding of each business. Scott theorizes that online dating will continue to grow and the potential in video games, which may become a second reality to some, is currently underappreciated.

Top investment idea: Match Group

Scott said, “If you are single, it would be romantically irresponsible for you not to check out online dating” because it offers excellent diversity and depth of potential matches. Match Group (NASDAQ: MTCH) is an undisputed leader in online dating, owning Hinge, OK Cupid, Plenty of Fish, and Tinder. The culture at Match is good at disrupting itself to reinvent product offerings, which protects Match’s dominance. Finally, with a growing user network, Scott thinks that these apps can even better monetize their subscription base. Users would be willing to pay a premium to get access to a network that would improve their probability in finding a soul mate.

The audience was engaged until the end, as speakers provided insights on a wide variety of regions and asset classes. A common theme that emerged, as the day went on, is that the investment environment is evolving faster than ever before as a result of humanity’s rapid technological advancements.