Jeff Young is a Portfolio Manager with NexGen Financial
Biography: Jeff has over 12 years financial industry experience, largely spent in the private client discretionary investment management and mutual fund segments of the industry. Jeff is a graduate of the inaugural cohort of the Simon Fraser University Global Asset and Wealth Management MBA program and was a Co-Recipient of the 2004 Barclays Global Investors Canada Research Award. In addition, he is a Chartered Financial Analyst (CFA). Jeff joined Nexgen Financial in 2005 to focus on North American equity investing and is the lead portfolio manager for the Nexgen Canadian Large Cap Fund, the Nexgen North American Large Cap Fund and the Nexgen Global Dividend Fund.
Q: Mr. Young, in the face of the recent volatility in the stock market, and gold hitting new all time highs – what would be you’re view of gold moving forward (is this the end of the bull run or does gold have a ways to go)?
A: It depends on the future actions of the Governments and Monetary authorities around the world, and especially in the US. Gold is generally purchased by investors to provide protection in the case of an uncontrolled inflationary or deflationary environment. Currently both inflationists and deflationists have potentially valid fears and are buying gold. The worst thing for gold would be a US economy that begins growing organically (i.e. not solely as a result of fiscal stimulus). This would allow for a reduction in government spending / deficits, an increase in interest rates (or at least a credible threat to do so) and provide some support for the USD. Gold could be volatile but should see buyers on weakness until the USD gets some support from a tempering of the current monetary and fiscal largess.
Q: On a related note, what is your call on the TSX going into year end and early next year - are we in for a correction or is this liquidity fulled rally going to continue? How are you gearing the fund to reflect this opinion?
A: Q3/09 earnings weren’t bad and even showed some hope for companies on the revenue line. As well, the outlook from management seems to be more positive than past quarters. Recent comments from Central bankers indicate that they are willing to leave rates low until they are certain a sustainable economic recovery has taken root which should support equity prices into year end. Recently, large cap dividend paying stocks, which have largely underperformed since the March bottom, have begun to perform better as investors take profits in more speculative companies. The funds are positioned to benefit from this trend.
Q: Given the glut of inventory in natural gas and crude sitting at approximately $75, what are your thoughts and predictions regarding the energy sector going forward?
A: From a secular perspective I am more bullish on Oil than Natural Gas. New technologies and discoveries have led to an abundance of Natural Gas which can now be taken out of the ground more cheaply whereas oil appears to be getting more difficult to find, more expensive to extract and has less elasticity of demand. Oil prices have held up remarkably well given the drop in Western demand over the last year.
Q: Given that cyclical stocks have outperformed defensives in this rally since March 2009, can you please highlight one sector among Canadian stocks (e.g. can be financials, energy stocks, technology, resources etc.) that you believe to be overbought and due for a correction and one sector that you believe to be oversold and due for a bounce and why?
A: The Materials sector is probably the most overbought and could certainly correct at any time. That being said the forces supporting gold are at play here as well. The biggest danger with the long commodities trade is the fact that US dollar sentiment is extremely one sided and negative. Such extremes set the stage for violent reversals which would hurt commodity prices, at least for a short time.
Consumer Discretionary and Telecom are under owned. Telecom worries are based on industry competition and growth outlooks and Consumer Discretionary stocks on economic concerns. I think there are some decent opportunities in both of these sectors that pay good dividends and would be somewhat defensive in the event of a pullback.
Q: Lastly, can you please highlight 1-2 stocks/themes that you think offers the best value moving forward and your reasons for liking it?
A: I think there is value in large cap dividend paying stocks. From a secular perspective, low interest rates and demographic change support the need for income. From a cyclical perspective, these companies tend to have strong balance sheets and good access to credit which puts them in good position to take market share from smaller weaker competitors as the economic recovery develops. They also tend to have multi-national operations which allow investors to benefit from the growth in emerging economies without the risk of investing there directly. We are probably leaving the period where the weakest performers of the sell off outperform simply because they survived and investors once again concern themselves with identifying companies that can provide sustainable earnings growth.
Thank you Mr. Young!
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