PODCASTS

PARTICIPANTS

Mark Brisley
Managing Director and Head of Dynamic Funds

David Fingold
Vice President and Senior Portfolio Manager

PRESENTATION

Mark Brisley: You are tuning in to On The Money with Dynamic Funds, a podcast series that delivers access to some of the industry's most experienced active managers and thought leaders. We're sitting down to ask them the pertinent questions, to find out their insights on the market environment and navigating the investment landscape. Welcome to another edition of On The Money. I'm your host Mark Brisley. Today, I'm joined by a frequent guest here at this podcast. Of course, I'm talking about portfolio manager David Fingold.

While it's been a while since we've had David on, more and more things have happened to change the tone and nature of the conversation. Now we're looking at everything from inflation to the Fed's hawkish tone to the very unfortunate situation that we're seeing unfold in Eastern Europe and a host of other issues that I'm sure we'll get to today. David, great to have you back at On The Money. Let's start then with unfortunate situation's an understatement, but your thoughts as a portfolio manager and investor on the situation in Eastern Europe and how you see equity markets progressing, does that make it particularly difficult to invest in European companies right now?

David Fingold: There's no question that European investors have a lot to digest, and it is not easy for us to put ourselves in the shoes of European investors, because when we're sitting in Canada, reading in the newspaper about what is happening in Eastern Europe or watching it on television, there is an element of distance. These events are not happening several hundred kilometers away from us. That is the case in Europe. Now there's a high human cost for this, but I think there's also an important point to make about the effect on the economy, which is, unfortunately, these things do happen.

I remember conflict in the former Yugoslavia in the 1990s. We've had conflict in the Middle East that has been similar distance from Western Europe as what's happening in the Ukraine. The way these geopolitical events unfold is that when the initial news gets out there, there is a big impact. But with each passing day, it takes increasingly more shocking news in order to shock the markets. You have already seen the markets become somewhat desensitized to what is happening and notwithstanding the human cost, every time there is a geopolitical change, it just has the potential to change the leadership within the markets.

I think that in Europe it's caused people to rediscover quality and stability. It's caused people to rediscover defense. I think that a lot of people forgot about the importance of the extractive industries, whether that be mining and oil and gas, or renewable industries like farming. There are industries where investors are now turning their eyes. There were bargains and those industries have started to outperform as the market deals with the solution to the problem, which is defined, reliable, stable sources of supply in a world that has changed from the way that it was before.

Mark Brisley: David, I think even before this conflict started to unfold, we were already talking about a lot of terminology coming out of the pandemic. Of course, I'm referring to inflation and there was talk with supply chain issues and with all of the things that have been going along with a recovery happening, high employment rates, and all the rest of it. We've been also talking about now the R-Word, of course, recession. Let's start with inflation though.

There are different types. One type is stagflation, but the reality of stagflation is we don't have two of the three things generally associated with stagflation, which would be high unemployment and slow to no economic growth, but inflation is still there. Can you comment a little bit on where we are with inflation right now and what type of inflation we're currently experiencing?

David Fingold: We're currently in what's called an inflationary boom, where you have inflation that has picked up over the long-term rate of inflation, but you also have economic growth. Now it can end with one of the words we don't want to use like recession or like stagflation, but it has to end for that to be the case. It's entirely possible that we stay in this phase for quite some time.

It is, however, a big change from where we were. We were in a highly disinflationary environment that is falling rates of inflation from the year 2000 up until 2015. Then starting with 2015, we entered a period of deglobalization. Companies started to understand that it was becoming very costly to source goods from the so-called low-cost countries. We heard a lot about onshoring and nearshoring and then with the COVID shock and with the shock of the conflict in Eastern Europe, you've had companies have to deal with the resilience of their supply chains. In a disinflationary environment, one simply went to where labor and raw materials were the cheapest in the world to produce products. They felt that they could ship those products just in time to market. We're now in a situation where companies, in order to provide security supply, need to hold inventory just in case. That is just in time appears to be something in the rearview mirror, and when you're in that situation, where you want a more resilient supply base, you want to be closer to your customers, some inflation is basically inevitable.

Goods are going to be manufactured where labor is more expensive, raw materials are going to be procured from more politically stable jurisdictions. Bringing supply closer to demand means less reliance on these logistics systems which could not deal with the stress from conflict, and from COVID. There is no way to sugarcoat all of us will pay more for everything. We were coming from an environment where 2% inflation seemed normal, and we have probably moved into an environment where the long-term number is closer to three.

I think it's no reason to be pessimistic, though because jobs are going to come back to Western countries or to their direct neighbors, as opposed to being on the other side of the world. The extractive industries, which were not given the proper attention, are getting proper attention from the companies and from investors.

That can include opportunities that exist in mining and oil and gas, forestry, farming, fertilizer industry close to home. Opportunities are created, it's no reason for pessimism. An inflationary boom is a good place to be, and it's going to continue until something goes wrong and there's no way to sugarcoat this. No expansion continues forever but right now, we see a green light when we look at the future, and we're optimistic.

Mark Brisley: When you talk about supply chain, we also have to think about labor and as an investor, are you looking at that closely? I guess the question is high employment, jobs are coming back, but labor still seems to be an issue. How much attention do you pay to that?

David Fingold: We pay a lot of attention to it. That disinflationary period we talked about a moment ago, was a period of time where real wages really did not rise in the Western world. It was a period of time where people talked about the rise of the middle class and the emerging markets, and there's no way to sugarcoat it. The rise of the middle class in the emerging markets led to a loss of real wage growth by the middle class in the developed markets. That is now shifting back in this direction. We expect that we're going to continue to see wage gains by the middle class in the developed markets of the world.

In fact, the strongest real wage growth we've seen recently has been from the bottom 20% of the income distribution. This is actually a very hopeful sign because those people, some of whom, some people call them the working poor, had not really had a wage increase after inflation in 20 or 30 years, and now they're starting to see wage increases. It means that, for all of us who are comfortable, we probably are going to have to pay more for things.

That being said, I think we were all worried about income inequality. We wanted to see a more just society here at home in Western Europe, in Canada, and in the United States and we're now seeing that happen as people in the lower 20% of the income distribution are making gains. As an investor, we look at it very simply. We want to be involved in companies where, first of all, they don't have to run out and give big wage increases to their employees, because their wages were always competitive.

I've been in business for a very long time, and I've learned that businesses that succeed simply by cheap labor, do not have a sustainable business model. The kinds of companies we like to invest in, pay their employees very well, very frequently they have employee share ownership plans, very frequently they have profit sharing. They see a happy, comfortable employee as a productive employee that can contribute to the success of the business, and to be blunt, I'm not saying any of these things because of an ethical or moral concern.

I've studied this in business school that the companies that treat their employees the best are the most profitable companies and they're the companies that have the best stock price performance in the long term, and that's where we're focused. We're happy to see that happening. It does mean though for investors that an active approach makes sense. One would want to avoid the companies that have to dramatically increase wages and benefits to try to attract workers, because they're just trying to catch up with the companies that always took proper care of their employees. An active approach shows us to avoid the companies that are poorly positioned and focus on the ones that are well positioned.

Mark Brisley: You also often talk about the importance of credit. I think sometimes people mistake that for the fact you're an equity manager. Why are you so worried about credit, but also, for anyone that's watching business news or turning on media outlets, they're talking about current economic conditions. They're hearing a lot about credit spreads. I don't think most investors probably have a detailed working knowledge of what credit spreads actually are. Could you walk us through a little bit about those and why do they matter as an investor?

David Fingold: I think the easiest way to understand credit spreads is to just pick one and we'll pick one that's relatively well known and talk about how it's calculated and what it means when that number changes. The longest time series of these credit spreads is the spread between the Moody's Baa-rated corporate and the US Treasury bond.

We actually have this time series going back to the late 1920s. It just measures the spread between the two numbers and the greater the spread, that is the more that corporates have to spend an interest in order to borrow versus the government, the more businesses retrench. If you look at this time series over the last 100 years, what you'll see is that when there's big spikes in credit spreads, that is when companies need to pay a lot more to borrow than the government does, the economy simply slows down.

It's very important to watch it from a macro point of view. We actually are able to get a lead on where the condition of the economy is going. I think that anybody who's listening to this who's in business is going to understand it because most entrepreneurs would say, if we're not growing, we're going backwards. If you ask them what would cause them to not grow, they would say because the bank wants us to repay our loan or the bank is charging us more for our loans. The reality is everybody who's been in business understands that direct connection between credit and the economy. We watch it very carefully. It helps inform us about whether or not we should become more defensive or whether or not we should be more opportunistic. In fact, I'm very hard pressed to find a stock market correction where there wasn't a significant break from trend and credit spreads. Credit spreads move out dramatically when the economy goes into a slow down or approaches recession. It's been a very, very helpful indicator

Mark Brisley: To go back a little bit then based on all the indicators that you're seeing right now, your level of optimism for the longer term, I know that it's not hard to turn on any news or media outlet or open up any newspaper and hear about predictions around recessions. With everything we've talked about so far the likelihood of recession happening in the next 12 months, are any of the indicators that you're looking at giving you this outlook?

David Fingold: We don't see a recession right now for Canada and the United States. The reason why we say it is that when we look at the yield curve and the best curve to look at for recession prediction is the three months treasury to a 10-year treasury bond curve. That curve is upward sloping. If it were to invert, it could give us a false positive.

It's actually called seven out of the last five recessions, but it has remained upward sloping. We call that a green light. Also, we look at the price of wholesale gasoline in the United States. It is maintained a 100% rate of change or more in time periods leading up to recession. Right now it's okay. I would also say about this measure that it only worked in the time period between 1970 and 2015.

That was a time period in which the United States, the world's largest producer of oil, gas and coal was not producing all the oil, gas and coal it could. That indicator actually did not work before 1970 and the U.S. is today the largest oil producer and was before 1970. Today, there's as many jobs being created by higher energy prices in the United States than the jobs that might be harmed by higher energy prices.

I am concerned about Europe. I think it's logical for us to be concerned. I don't think there's any guarantee there with recession, but Europe is a very significant importer of raw materials. They buy their raw materials more from Russia than from anybody else. It is possible that their economy is going to slow very, very dramatically. They could go into recession. I would say that the chances in Europe are probably above average. Whereas, I'd say that they are clearly below average In North America.

The way we approach this is, first of all, that we want to focus on companies that are well-positioned. Obviously, any companies that rely on European consumers. We would want to be involved in either the companies that we know can pass through their higher costs and have more resilient demand, and also, we'd like to be focused on companies that are a solution to the problem.

Europe can solve its problems. They can decide to source more raw materials from politically safe jurisdictions, and that can include Canada and the United States. There's very significant natural gas available in Israel. We're very hopeful that Chevron will be able to expand there and supply natural gas from Israel into Europe, so they can diversify away from Russia. We know we're faced with a slow economy in Europe, but again, we would rather be focused on the solutions to the problem.

As I say this, I think about what Ned Goodman, our founder, always said, which is he's an optimist because he never met a rich pessimist. We'd like to focus on finding the optimistic ways to help Europe with their problems, as opposed to just dwelling on the negativity, because, as Ned said, he never met a rich pessimist.

Mark Brisley: When you've talked about your investment process, you've always talked about owning high-quality companies and those that can grow their dividends. When we think about what you just said about Europe, but also the fact that you're a global investor, so looking outside of that as well, does it make it harder in the European theater, for example, to find these types of businesses going forward? Does that have you looking more towards North America and internationally?

David Fingold: There is no question we have been forced to focus more on the United States. This is a call that I got wrong in 2020. We decided that there was a huge opportunity in international markets outside the United States. It really paid off for us in 2020, but over the course of 2021, we saw the U.S. reassert itself. There are several reasons why the U.S. has reasserted itself. One of them is that commodity prices moved up and the U.S. is self-sufficient if it chooses to be in almost every commodity it consumes. Europe is the world's largest importer of commodities, so they're the opposite of self-sufficient. Europe also has as an older population and had more issues to deal with in that respect vis-a-vis COVID.

I took the message from the market and over the course of 2021, we moved money back from Europe to the United States. As a generalization, once the U.S. has taken a leadership position, once it starts outperforming the rest of the world, it tends to persist for the rest of a cycle. In fact, I don't think that I can find a time period in the past where you got 12 months of outperformance of international markets versus the U.S. once the U.S. asserts itself. You can get 12 months where international performs in line with the United States. I think that that will happen a number of times between now and when the cycle ends. There's no question that the U.S. secedes leadership and we feed winners and we starve losers.

We don't feel tempted to shift money back from Europe, but we are also not running U.S. equity funds when we run global equity funds. We will maintain a responsible amount of investment in Europe. We think that everybody's too pessimistic about it. They're too pessimistic about Japan. Things will get better. The sun does rise. Day follows night. I know that's not easy to accept when you watch TV or read the newspaper, but that has always been the case. I doubt that we're going to go back to a significant overweight in international markets until the next recession. As I mentioned earlier, we don't see that on the horizon, but it is inevitable.

Mark Brisley: What about currency? When you look at exposure to various currencies in the funds you manage, given the range of countries you're able to invest in. I think we could note you're not often long the U.S. dollar. Specifically, to the U.S. dollar and other currencies, what do you prefer in volatile markets like the one we're in right now?

David Fingold: Look, part of what helped us make the decision that we needed to back away from Europe and Japan was the weakness of their currencies. As I think everybody knows because it's in the business pages every day, the Japanese Yen has done very poorly. The Euro has done very poorly, and we did what we had to do. I mean, part of what went into that decision to move some money back to the United States was the strength of the U.S. Dollar.

I think that for Canadian investors where we really haven't seen the U.S. dollar move that much in Canadian Dollar terms, it's difficult for us to see it but the U.S. is the world's largest oil producer, and the U.S. Dollar along with the Norwegian Krone the Canadian Dollar, the Australian Dollar, the currencies of commodity-producing countries have been amongst the strongest currencies.

There are also some long-term winners, whether it be because they're countries that offer a tremendous legal environment and financial environment, and also technological leadership. The Swiss Franc has done quite well over time and we've benefited from that and also, there's been tremendous growth in Israel and improvements in productivity, technological advancements, deregulation over the last 20 years, that's led to the success of the Israeli shekels. I literally just talk to you about our favorite currencies. It's a commodity complex, plus the Swiss Franc and the Israeli Shekel. I think the other thing about it is that if the commodity currencies are going to outperform in this mildly inflationary environment, one of the things we can also do to get exposure to that is to have more investments in commodities either directly by owning gold bullion, or by owning commodity producers and these things are positively correlated with what's going on with currency.

If I just back up a bit and simplify the way we approach currency, it's very, very simple. If we like a currency, we go long, we invest in companies in that country and benefit from the strength of that currency. If we don't like a currency, if we see it doing poorly, and think that it has the scope to continue to do poorly, we simply leave the country, reduce our exposure to companies that are operating in that country because they don't know how to make money when a currency is going down.

It's an active approach that we take to that and again, I know I've used the expression active approach several times in this conversation but what that means is, I don't really care what the weight is of the Eurozone countries within the MSCI World Index. If I think the Euro is going to do poorly, we're going to back away from the Eurozone and it's just that simple.

A manager that hugs his or her index is going to stay very close to that currency weight whether they like the currency or not, but we take an active approach. We have a view, and we put our money where our mouth is.

Mark Brisley: You mentioned the world's oldest currency, talking about gold. I wanted to get your thoughts on gold in this environment. Do you have any exposure to gold or gold companies right now in the portfolios?

David Fingold: We do. We were very long-term believers in gold from the early 2000s up until really the peak in that market around 2012 and stayed on the sidelines. We've become more interested recently for several reasons. One of them is that we still have incredibly low real interest rates. The other thing about it is we still have an extraordinary level of government spending, and we have extraordinarily low levels of consumer confidence.

In fact, a lot of people don't understand that the consumer confidence lower it is, it actually is good at predicting the performance of gold. One of the other things we're seeing today is, in this world that is deglobalizing where countries like the United States are saying, we're not sure we want to do business with Russia, and other people are perhaps backing away from doing business with other authoritarian states because of their behaviour in terms of human rights.

A lot of those foreign countries are saying, wait, we can get hit with sanctions by the United States and it's very easy for the U.S. to hit us with sanctions if our reserves are held, for instance, in bonds that are custody in Western Europe or in North America but to be blunt, if you're the Bank of Russia, and you have a significant part of your reserves and gold bullion in the basement of the bank in Moscow as they do, that is a reserve asset that nobody can attack with sanctions.

To be blunt, because of the sanctions regime weve seen, we are seeing more and more governments choose to hold reserves in gold and in other hard non-perishable commodities because ultimately, they may need those reserves in order to pay bills and it's very difficult to stop them from using those reserves if they are held within hard assets.

I wouldn't be surprised to see an increase in strategic stockpiles of other precious metals or perhaps precious gems. I wouldn't be surprised to see an increase in strategic stockpiles of the metals that do not oxidize. Some of you will remember that during the cold war most Western governments stockpiled things like nickel and copper because they were worried about production interruptions affecting their defense readiness.

I wouldn't be surprised to see more stockpiles in that respect. If something's not perishable and you might need it in the future, it might be worth stockpiling. From an investment approach, the way that we have dealt with it is, in our multi-asset class fund, the Global Asset Allocation Fund, we actually own gold bullion. In that particular case, we own 400-ounce bars of gold and as I like to explain to people, that's the one thing that I'm absolutely sure is gold.

This isn't paper gold. It's not certificates, it's not ETFs. This is the five-nines pure gold bars that are good delivery according to the London Metal Bullion Dealers Association. We like it as a conservative asset for the asset allocation fund because we like to say its beta is one. If the price of gold goes up by a dollar ounce, it goes up by a dollar an ounce. We deal with a bit more volatility when we invest in gold equities and gold equities are represented in almost all of our other portfolios, we have exposure in all of the portfolios to some amount of gold, and some of the portfolios are exposed to companies that only produce gold.

I'll just try to explain this. Some of the multinational mining companies make a variety of metals but they might be exposed to more in the way of gold and platinum group metals and diamonds than other companies, and Anglo-American would come up as a well-known example of a company like that. Whereas the senior gold mining companies, and we all know their names primarily produce gold but every portfolio has some amount of exposure either through primary gold producers or through base metal producers with a significant amount of gold.

We see a good backdrop for it but broadly, I'm not sure we see a very different backdrop in the long term than what we see for other mind commodities because what we are learning is that the previous sources of supply were not politically stable. Perhaps we didn't want to do business with them because we don't agree with their politics and that includes the human rights policies. That is moving the demand back to the Western Producers companies that could be based in Europe or the United States, Australia even Canada.

We've tried to focus on the companies that produce raw materials in politically safe jurisdictions. I think that there was just way too much flip and see amongst investors where they weren't concerned about the political stability of the countries in which their companies were operating, and we are very concerned about it. We have absolutely gone out of our way in the extractive industries to pick the jurisdictions we want to be in, the ones that have good labour laws, good environmental laws, and good property laws where I feel that as investors, we will be properly respected by government.

Mark Brisley: You've mentioned a couple of times on the show so far about taking an active approach to the portfolios and whether it's choosing reserve currencies, whether it's looking at different sectors, whether it's looking for high-dividend companies, but I don't know if a lot of people would appreciate that part of that process as being active as well is, decision to hold in cash in your portfolios. You've been not shy to do this in the past over the 20 years you've been managing funds. How do you employ cash in the funds? What causes you to increase or decrease the cash component, and why is this important?

David Fingold: We are required to declare what our risk rating is on a fund and most of the money that our team manages are in the category, that's called low to moderate risk. It's actually very clearly defined by regulators, what low to moderate risk means. It's defined in terms of the standard deviation of returns and I don't want to get too technical but ultimately, if you are incurring severe losses, it's very difficult to maintain that promise to try as best as you can to remain low to moderate risk.

We approach it in two or three ways. One of them is, we want to build a conservative portfolio to begin with, we want to invest in high-quality companies. This is companies with a strong balance sheet, strong profitability, consistent profitability. When you get bear markets, they will go down less. They tend to outperform when volatility picks up, then we want to barbell the portfolio, which is a technical way of saying we want to blend together with the high-quality cyclical companies we own, more defensive businesses, they could be in businesses that make things you eat, drink, and smoke. It could include the pharmaceutical industry, real estate, utilities, businesses that can reliably generate revenues within reason in an environment of economic volatility. The final part about this is though, and I think we all know this, that when you get into severe corrections or bear markets, ultimately, everything is going down, and the one thing we can't lose money on is cash. When bad things happen, we're prepared to raise cash.

Back during the global financial crisis, we were up at 30% or 40% cash in the Global Dividend Fund and there was volatility during 2015, there was volatility at the end of 2018. I think that we're all a little bit-- We have a bit of PTSD from the volatility in March 2020, which was an actual bear market. On all those events, we were prepared to accumulate significant amounts of cash.

I named events where we were able to get up to at a minimum 15% or 20% cash sometimes more. Now it's important to understand that when we do that, it's great at mitigating the volatility, but ultimately, we have to be right twice. It's not just that we can raise cash, it's that the record shows that when we raise cash, we're right more often than not. Also, when there are bargains, when it's time to put the cash to work, when we can buy great businesses when they're on sale, we've shown we can put the cash to work and benefit from those bargains.

It's not easy, but you mentioned the long-term timeframe in which we've been doing it. It's also a key differentiator. When I go back and I look at the periods in the past of volatility, I think we've gotten it right more often than not. We've learned from our mistakes, we get better. We like to believe that it makes us a reliable partner for clients, but the final thing I'd say about it is it's also a reflection of my own personality. This is how I invest. I don't use any managers other than me and I have no long-term investments other than the funds I manage. I take a significant part of my compensation in units of the funds that I manage. I don't care for volatility.

I don't know how to make money on a stock that's going down. When we see that we are incurring losses, we will minimize those losses. I'm also a long-term optimistic person. When I see the bargains are created that makes sense to put the cash to work. It's literally-- I am a direct partner with my clients when we're putting that cash to work. There's just one key difference, which is I imagine my clients have more than one manager and I do not, but there's basically no difference between the results that I achieve and that my clients achieve. This philosophy around risk management is a reflection of my experience and my personality.

Mark Brisley: Once you've decided to deploy cash into the portfolios, one of the topics that comes up then is obviously sector allocation. I wanted to ask about one particular sector that you haven't had a lot of exposure to in your portfolios. I'm referring to energy. You talked a little bit about energy production, energy prices, earlier on, I think now it's an overweight position for you in most of your mandates. Can you talk a little bit about your exposure to the energy sector? If there's anything besides the price of oil, which is getting all the headlines that's caused you to once again, own companies in that sector in particular.

David Fingold: We have seen a very interesting opportunity set present itself, and it does remind me of the opportunity set from the early 2000s. It's similar to the opportunity set from the late 1980s. What happens is and let's just pretend for a moment it's not the energy sector, but if you look at an industry and you see that management is unwilling to reinvest in its business.

Let's just say they don't believe in the future, or they're not allowed to reinvest in their business. That tends to be very bullish because the reality of these businesses, particularly commodity-oriented ones is that at the bottom of cycle, the management doesn't believe the cycle will sustain itself, they refuse to reinvest, the cycle progresses and progresses.

The only thing that ends the cycle is either a recession or when management over-invest, create overcapacity, and compete away their profits. We are seeing a very interesting situation right now in energy, similar to those prior time periods I mentioned before, where these businesses are refusing to reinvest in themselves. Now it's happening for several reasons. One of them is they may not be allowed to; they may be in a jurisdiction where the government will not allow them to grow production.

Another reason may be that they've made promises to investors to pay out all their free cash flows in the form of a dividend. Finally, another reason for the refusal to invest could just be around climate-carbon transition, ESG and we're seeing this a lot. We're seeing oil and gas companies that are building alternative energy projects instead of producing oil.

We've tried to partner with the companies that are capitalizing these trends but understand that their job is to produce reliable energy, to do it safely, and supply consumers who need energy.

In the U.S. market, we're partnered with several companies that have excellent safety records, environmental records, they don't flare gas, they are doing all of the correct best-in-class practices. I get it that the government is not very cooperative with the industry, but that being said, it's still a free country and they can still produce oil and the government has lost all the litigation where they've tried to stop oil companies from producing. We also rather like the opportunity set in Israel; the Levant basin is very prospective for natural gas. There's a tremendous opportunity there for Chevron to expand its production and solve the part of the energy supply needs of Europe.

We also like the Norwegian zone and the North Sea. Norway has a tremendous industrial policy. Basically, they drive electric cars, they use hydropower and solar, and that leaves them with the ability to export most of their oil and natural gas to sell to the rest of the world, earn money, put it into their sovereign wealth fund, become wealthier.

We've tried to go to where we have governments as partners or go have been unable to stop us. We have avoided the companies that say, "Hey, I'm going to go build windmills." Now, to be clear about this, I love wind energy. I think it's a fantastic place to invest. But we want to take our wind energy from companies that specialize in it. I think back to when I was in business school and we studied poor diversification by oil companies, we saw oil companies diversify into mining into the seventies. Some of them diversified into the computer business.

The bottom line is we want to take oil companies to specialize in oil. For wind, we're very excited about that space, a company like Schweiter Technologies, it makes a composite material for windmill blades. The new windmills, the blades are longer than the wings on big aircraft. It's very highly stressed. There are very few people you can go to for those materials. We like the utilities to produce wind and solar.

A lot of people don't know this, but Berkshire Hathaway Energy which is part of Mr. Buffett's Berkshire Hathaway is believed to be one of the largest, if not the largest producers of wind and solar power in the world. We have nothing against the alternatives we just want to go and get them with the companies that specialize in them.

Mark Brisley: One other sector I wanted to ask you about was information technology. That's a sector that you've referred to as one of the three best performing sectors of all time. I think for a lot of our listeners, when they think about this, though, they think about the Googles and the Microsofts and maybe a company that's been in the news a lot this last week. What are your thoughts, in general, on the sector beyond just big tech, and have you been increasing or decreasing you're weighting in the sector, in particular?

David Fingold: Look, you're quite right to point out that it's one of the three best performing sectors of all time. The other two are consumer discretionary and healthcare and just being one of the best performing of all time doesn't mean that it outperforms all the time. There are periods of time that could be years long where technology underperforms, and it appears as if we are in one of those time periods and we do feed winners and starve losers. It is not uncommon for healthcare to pick up the baton when technology is underperforming, and that appears to be the case right now, we have reacted to that by reducing our investments in technology.

It is a good opportunity for us to be active managers because technology is the largest sector weight within the MSCI World Index, and also, the largest sector within the S&P 500. So if it's underperforming and, we can only focus on the company is that we think have prospects for outperformance within that industry, then it can add value. I don't think you'll see us at zero weight, but to be blunt, if it's necessary, I'll do what I have to do.

I just don't foresee it because when I go back and look at other periods of technology underperformance, there were still companies that were relevant that were serving clients' needs were outperforming, but usually, the reason for the underperformance is some of the big large-cap names, the ones that are weighing on the industry and holding down the broad technology index are themselves underperforming.

We're going to be flexible here, but ultimately, we needed to find the cash for the industries that are showing leadership today, which includes materials, energy, healthcare, a bit of real estate, a bit of utilities, some consumer staples. I will say it was fun when we had the ability to find quality and growth at a reasonable price in large-cap tech stocks, but the fun doesn't last forever, and this is coming off of a run, a very good run that some would argue started in 2008. If you've gotten an over 10-year time period of outperformance of an industry, it's not uncommon for it to take a break.

We don't see it as a negative. We do think though that if the largest sector is potentially underperforming the market, that maybe the overall indices don't have a lot of upside. From my perspective, I do see upside in the indices, but it suggests that maybe the wrong solution is an index fund with a huge position in technology. The right answer might be an actively managed portfolio like ours, that can find opportunities elsewhere.

Technology was the leadership. Again, I'm reminded of Ned Goodman telling us back in 2002, he talked about the new leadership and the technology had been the leader in the '90s and it was taking a break. Find the new leadership and that's what we're doing now. We're not going to allow a shift in the markets to stop us from being optimistic or stop us from being active. We'll let that shift in the market be something to frustrate index funds and managers, the closet indexers, who hug their indices.

Mark Brisley: You mentioned Ned Goodman a couple of times. I thought, you know what, for our listeners who may not know Ned, Canadian investment icon, the founder of what is now Dynamic Funds over 65 years ago. Someone we both had the pleasure of working with. You also gave me the natural segue to a close here, David, and that as you said the fun and I'll add the not so fun, doesn't last forever, but you manage your funds for the long term. Your outlook for the rest of the year, and any final thoughts to leave our listeners with.

David Fingold: Look, we are optimistic, but it's important to understand when I say I'm optimistic for the companies that we own. I do have some concerns about the parts of the world that are going through trouble right now. I do have some concerns about some of the industries that are under pressure, but I'm very optimistic for our portfolios. I'm optimistic for the economy in much of the world.

I even have longer-term optimism for Europe. I think that they will make the decision to solve their problems to diversify their markets, diversify their sources of raw materials, everything that's ailing Europe is treatable. I would not be surprised simply based upon the current state of credit markets, the current shape of the yield curve. I would expect the economy to continue to grow through the end of the year, and I would expect the market to be up.

By the way, these are not heroic assumptions. I don't have a magical crystal ball. I just told you what's happened most of the time. I think that for whatever reason, we tend to gravitate towards the negative. We remember whatever was the most recent volatility. We carry around some PTSD from 2020, or from 2008 or from 2002. Then we forget that the good times actually last much, much longer than the bad times. My job is to try to, if I have PTSD, get it treated, set it aside to be emotionless, and look at the opportunity set. When we do look at the opportunity set, we think that we are optimistic and it's perfectly rational to be optimistic.

Mark Brisley: Well, cheers to that. David, always a pleasure. Thanks for taking the time to unwrap as much as you did for us today.

David Fingold: Thank you for having me on.

Mark Brisley: To all of our listeners. Thank you once again, for joining us at On the Money. If you'd like any further information about the words that David has spoken here today, or any of his mandates, or anything else on investing resources or any of our other portfolio managers and mandates, please check us out at dynamic.ca. Again, we appreciate you spending your time with us. Thanks for being here.

You've been listening to another edition of On the Money with Dynamic Funds. For more information on Dynamic and our complete fund lineup, contact your financial advisor or visit our website at dynamic.ca. This audio has been prepared by 1832 Asset Management L.P. and is provided for information purposes only. Views expressed regarding a particular investment economy, industry, or market sector should not be considered an indication of trading intent of any of the mutual funds managed by 1832 Asset Management L.P.

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