Key Concepts
- Stagflation: A situation characterized by slow economic growth and relatively high inflation.
- Tariffs: Taxes imposed on imported or exported goods.
- Emerging Markets: Developing countries with rapidly growing economies.
- Tertiary Markets: Less developed or smaller financial markets.
- Tangible Assets: Physical assets like infrastructure, utilities, and pipelines.
- Base Metals: Industrial metals like copper, aluminum, and zinc.
- Brookfield Infrastructure (BIP) & Brookfield Renewable (BEP.UN): Canadian infrastructure and renewable energy companies with complex corporate structures.
- Unit Trusts vs. Corporate Shares: Different ways to invest in Brookfield, with varying tax implications and pricing.
- RRSP/TFSA: Registered Retirement Savings Plan/Tax-Free Savings Account – Canadian registered investment accounts.
- Victor Dodig: Former CEO of CIBC, appointed as the new CEO of Telus.
Economic Outlook & Market Strategy
Ryan Bushel expresses concern regarding the US economic outlook despite recent market performance. He notes that the strong Q4 GDP growth appears unsustainable, evidenced by weaker-than-expected data released on Friday, with GDP coming in at half the expected rate. This, combined with persistent inflation, raises the specter of a stagflationary scenario – a situation he describes as undesirable. He highlights the added uncertainty stemming from fluctuating tariff policies, referencing Donald Trump’s recent announcement of a potential 15% tariff across the board (initially 10%, then increased to 15% before market open). Bushel emphasizes the disruptive impact of these rapidly changing circumstances on business planning. Rising oil prices are also identified as a contributing factor to inflationary pressures.
Portfolio Positioning & Asset Allocation
Bushel’s firm, New Haven Asset Management, adopts a strategy of avoiding technology investments. He notes that their portfolio has benefited from the recent underperformance of the tech sector, with capital flowing out of the US and into emerging and tertiary markets like Canada. This capital flow is shifting from the “digital space” back towards the “real economy,” driving demand for tangible assets. Specifically, they are invested in utilities, infrastructure, and pipelines, which have experienced significant positive momentum. Bushel believes this trend could continue, particularly during broader market turmoil, as technology remains heavily concentrated and trades at high multiples. He anticipates any market panic would disproportionately impact technology, further benefiting their infrastructure holdings.
Copper & Base Metals Analysis
Regarding the recent enthusiasm surrounding copper, Bushel expresses caution, suggesting the hype is “somewhat overblown.” He acknowledges the potential for increased demand driven by electrification and infrastructure projects, but highlights challenges in securing direct exposure. Investing in large mining companies like BHP and Rio Tinto doesn’t provide “pure exposure,” while smaller companies in regions like Mexico, South America, and Africa carry geopolitical risks. He also points to China’s significant copper inventories and its control over refining capacity as complicating factors. Instead of directly investing in copper, New Haven Asset Management prefers to invest in the end-use applications of copper, such as utility-based infrastructure and construction. He notes that the broader shift of capital from the digital to the real economy is also benefiting base metals and gold.
Brookfield Infrastructure/Renewable Trade
Bushel identifies a specific trading opportunity involving Brookfield Infrastructure (BIP) and Brookfield Renewable (BEP.UN). He explains that Brookfield has issued corporate shares (BEPC, BIPC) to accommodate institutional investors who are restricted from owning Bermuda-based limited partnerships (the unit trust structures). These corporate shares currently trade at a “material discount” to the unit trust structures. He observed on January 20th that the corporate structures had blown out in premium over the unit trust structures. Brookfield themselves initiated an at-market equity issuance program to purchase the undervalued trust units. For Canadian investors, who can benefit from favorable tax treatment of the unit trusts within RRSPs or TFSAs, Bushel recommends purchasing the unit trusts due to the approximately 0.75% higher yield. He cites performance data from January 20th, showing the unit trust structures (BEP, BIPC) outperforming the corporate structures (BEPC, BIPC) by approximately 2:1 (12.5% vs. 7% for BEP, and 11-12% vs. 6% for BIPC).
Telus CEO Appointment & Leadership
Bushel expresses strong approval of Telus’s appointment of Victor Dodig, the former CEO of CIBC, as its new CEO. He believes Dodig’s successful turnaround of CIBC, including a cultural shift and improved earnings performance, makes him ideally suited to revitalize Telus. Bushel notes that Telus, like CIBC under Dodig’s predecessor, was in need of a “refresh” and a “cultural shift.” He emphasizes the significance of Dodig’s willingness to take on the CEO role directly, rather than simply remaining on the board, as a demonstration of his commitment and leadership. He believes Dodig’s experience in leading cultural change will be particularly valuable for Telus as the telecom sector evolves.
Logical Connections
The discussion flows logically from a broad macroeconomic overview (US GDP, inflation, tariffs) to specific investment strategies and opportunities. Bushel’s concerns about the economic environment drive his firm’s portfolio positioning, favoring tangible assets and avoiding technology. The analysis of copper and Brookfield further illustrates this strategy, focusing on indirect exposure to commodities and exploiting pricing discrepancies. The final segment on Telus’s CEO appointment provides a positive outlook on a specific company within the infrastructure sector, reinforcing the overall theme of investing in the “real economy.”
Conclusion
Ryan Bushel presents a cautious outlook on the US economy, citing concerns about stagflation, tariff uncertainty, and rising oil prices. His firm’s investment strategy is geared towards capitalizing on these concerns by focusing on tangible assets, particularly in infrastructure and utilities, and avoiding the technology sector. He highlights a specific trading opportunity involving Brookfield Infrastructure/Renewable and expresses optimism about the leadership change at Telus. The overarching takeaway is a preference for value-oriented investments in the “real economy” as a hedge against potential economic headwinds and market volatility.
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