Some say the market is expensive right now. Jim Schetakis thinks it's cheap, relatively speaking. The senior vice-president and portfolio manager at Barometer Capital Management is mostly invested in the United States at the moment, with some exposure to Canada and Europe. He's also got his eye on Japan. The Globe and Mail spoke with Mr. Schetakis recently about what he's buying and selling – and the headline-making stock he wished he picked up sooner.
What concerns are you hearing from your investors today?
Clients are always concerned that the markets are volatile. There's also a perceived notion that the market is expensive. We have to talk them down and say, 'This isn't the market of 2000, when valuations were 30 times earnings.'
Right now they're sub-20s. The S&P is trading at 16 times earnings. It's in that sweet spot of revenue and earnings growth. There are risks, but the fundamentals of the economy are doing just fine.
When you look at job growth in the United States, it continues at a decent pace. Unemployment is at historic lows and consumer and business confidence are approaching highs. The economy is doing just fine.
Where are you invested?
About 70 to 75 per cent of our portfolio is in the U.S. The rest is in Canada and Europe. As things are improving in Japan, we're looking at some investments there down the road.
Why are you less interested in Canada right now?
The Canadian index is dominated by resources and banks. When you look at the economy, we're growing, but not fast enough. The banks are well capitalized and well run, but there is limited growth. The resource sector isn't determined by what happens in Canada. It's the rest of the world and the lack of demand and oversupply is a problem. The same for metals. So, when you look at that, it's less attractive. When you look at the U.S. market, it's dominated by technology. That's where we are seeing tremendous growth and innovation taking place.
What stocks have you been buying lately?
A couple of our biggest positions are in Visa and Microsoft. We've owned them for a while and have been adding to them. Microsoft used to be this sleeping giant. They've transformed themselves under the new CEO. They've gone from selling licences every three or four years to a subscription model. That has a number of virtues. It makes their revenue less lumpy. They're also growing quickly in the cloud business. It's one of those companies people used to hate. Now, it's a good story. We're always looking for companies that are good and getting better. Visa is seeing more growth in dollar volume and penetration. We think they will continue to surprise us on the upside.
What have you sold recently?
We sold most of our energy holdings earlier this year, including Pioneer [Energy Services], Diamondback [Energy] and Halliburton in the U.S. and Suncor [Energy] and Canadian Natural Resources in Canada. We own some pipelines, namely Pembina and Veresen. We've also reduced our weighting of financials in Canada and prefer the U.S., where we see more growth. Plus, the regulatory structure there is changing. We should see some decent ability by the banks in the U.S. to return capital to shareholders. In Canada, we just own the Royal Bank right now. The Canadian banks are fine. It's less about the risk in Canadian banks and more about the opportunities in the U.S.
What stock do you wish you bought?
One of the stocks we own now, but probably should've owned sooner, is Tesla. It took us a while to figure out how to understand the company. We've been in and out of the stock in the past five months or so, at prices ranging from $270 (U.S.) to $350. [Today, it's trading around $375.]
This interview has been edited and condensed.