Investors betting against Canadian assets are poised to lose out because the country’s growth prospects mean the securities offer protection against potential crises, Caisse de Depot et Placement du Quebec’s chief investment officer said today.
“Shorting something that’s boring -- good luck. It can cost you a lot of money,” Lescure said, referring to the practice by investors of selling assets in hopes of buying it at a cheaper price in the future.
Canada’s dollar, stocks and bonds have lost some of their luster over the past couple of years, in part due to investor concern the nation’s housing market will correct and record household debt would slow the consumer spending that had been driving growth since the end of the recession.
Canada’s benchmark stock index is underperforming U.S. equities for a third year on expectations for better U.S. growth, while the Canadian dollar has fallen 5.5 percent over the past 12 months. The Bank of America Merrill Lynch Canada Broad Market Index underperformed the U.S. in 2012 for the first time in three years.
While Canadian bonds and stocks have fared better in recent months, futures traders are still betting on a decline in the Canadian dollar.
Bets by hedge funds and other large speculators that the Canadian dollar will decline against its U.S. peer reached the most since June 14 last week, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a decline in the loonie compared with those on a gain -- net shorts -- was 34,639 on Sept. 3, compared with net shorts of 24,959 a week earlier, data Sept 6 showed.
“When you want to short something, you want those things to go up in flames,” Lescure said. “Canada is not going to explode in the air. In the next five to 10 years, it’s probably going to be growing steady as she goes.”
The Caisse oversees pensions for retirees in the French-speaking province of Quebec, with a dual mandate of maximizing returns and fostering economic growth in the province. It had net assets of C$185.9 billion ($180 billion) of assets as of June 30, ranking it second among Canadian pension managers after the Canada Pension Plan Investment Board.
Under Lescure and Chief Executive Officer Michael Sabia, the Caisse is increasing investments in assets such as real estate, infrastructure and private equity to reduce volatility in returns. The Caisse plans to add C$10 billion to C$12 billion in what it calls “less liquid” investments in the next two years, Sabia said in January.
Publicly traded equities were the Caisse’s biggest asset class as of the end of 2012, accounting for about 37 percent of assets. Fixed income, with just under 37 percent, ranked second. More than 57 percent of the Caisse’s total assets were held in Canada, compared with 20 percent in the U.S.
“The U.S. is more volatile, with a lot of opportunities,” Lescure said. “We like to invest in the U.S. and are doing it more and more. But there’s more risk.”
Even as it invests more abroad, the Caisse will continue to hold a significant portion of assets at home because its liabilities are denominated in Canadian dollars, Lescure said.
The Canadian dollar’s recent decline against its U.S. counterpart in the last year means that the currency is “now better aligned with fundamentals,” he said.
To make up for an expected drop in fixed-income returns, Lescure said the Caisse has been buying shorter-duration bonds, provincial debt and “some corporates, well chosen.” In addition, he said, the fund manager has added “some equities that look a bit like fixed income.”
In January, the Caisse began building a fund to buy stakes in companies such as Nestle SA (NESN) and HJ Heinz Co. that it considers global leaders. Lescure said the fund, which had assets of about C$9.5 billion as of June 30, targets companies that are “very visible, safe, with strong visibility of cash flows.”
Apple Inc. (AAPL), while a “great company,” is probably too volatile for the Caisse, Lescure said.
“In a way, we are more Coke than Apple at the Caisse,” Lescure said, referring to Coca-Cola Co. (KO), which “sells about 25 billion bottles of Coke every year. In five years, they might be selling 26 or 24. It’s not going to be a roller coaster.”
The Caisse would consider investing in BlackBerry Ltd. (BB) if the smartphone maker were to go private, Lescure also said, echoing comments made last month by Sabia.
“We are open to any opportunity for sure,” Lescure said when asked about BlackBerry. “We are trying to avoid rumors, but most importantly I think we are doing our homework. We are doing research, we are trying to understand companies whether it’s BlackBerry or another one, and then when we decide to act you guys usually hear about it.”
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