Investment managers for Canada’s doctors are buying international stocks with strong links to faster-growing emerging markets, such as Dutch brewer Heineken NV, to boost returns.
Heineken earns more than half its revenue in emerging markets while avoiding the “impediments” of direct investment in countries with unclear legal rules, said William R. Horton Jr., chief investment officer with MD Physician Services Inc., which helps manage C$22 billion ($22.5 billion) of assets for doctors and their family members.
Horton has boosted equity holdings to 60 percent of a typical 10-year portfolio from a 57 percent benchmark while cutting back on Canadian stocks in favor of U.S. and international securities, he said in an interview yesterday at Bloomberg’s Ottawa newsroom. That decision was based in part on International Monetary Fund figures showing Canada and other advanced economies may grow at about one-third the pace of emerging markets in the next five years, Horton said.
“It’s looking at where the value is going to be extracted from in a two-speed economy,” he said. “We are looking at Canada as being highly dependent” on slower-growing developed economies, he said.
Heineken, based in Amsterdam, earned 57 percent of its revenue outside of western Europe last year, according to data compiled by Bloomberg. The shares rose 2 percent to 46.08 euros in Amsterdam today.
Horton also cited New York-based cosmetics maker Avon Products Inc. as a similar company because it earns about half its revenue in Latin America, adding that “the stock hasn’t done well lately.” Avon shares rose 1.7 percent to $16.26 at 12:02 p.m. in New York, and have generated an 18.6 percent loss over the past year.
MD Physician Services is owned by the Canadian Medical Association and uses outside companies to execute trades under strategy guidelines that Horton oversees.
The company reviews its strategies each quarter, Horton said. Canadian stocks now represent about 26 percent of a standard portfolio instead of the regular 27 percent, while total stock holdings have increased, he said. The latest reallocation last week also gave an “overweight” position to Canadian corporate bonds, Horton said, without elaborating.
The Standard & Poor’s/TSX Composite Index, Canada’s primary stock gauge, climbed 3.9 percent this year, compared with a 4.7 percent advance for the Bank of America Merrill Lynch Canada Corporate Index, which tracks about C$320 billion of domestic, investment-grade company debt.
The Standard and Poor’s 500 Index is up 16 percent in 2012 and the MSCI Emerging Markets Index has gained 10 percent.
Bank of Canada Governor Mark Carney will have to take into account his global colleagues’ policies in deciding when to follow through on his inclination to raise borrowing costs, Horton said. Higher rates can reduce bond returns.
The idea of “looking at national decisions in an international or global context is growing, and that’s what he will be doing,” Horton said. Carney is the only Group of Seven central banker who has said he may tighten monetary policy.
MD Physician Services’ typical client has a portfolio of about C$1.5 million, Horton said. It was established to help doctors invest without being distracted by market volatility. While Horton says he has great flexibility in how the money is invested, he said there’s one “hard and fast constraint” on all of their investment managers: “They can’t own tobacco stocks.”