Russell Focused Canadian Equity Pool<\/a>, which has a significant defensive orientation. “We have a deep underweight in financials,” says Thierry Vall\u00e9e, a senior portfolio manager and head of Canadian equities at Russell Canada, “and we also have a decent underweight in energy.”<\/p>\n Sustainable dividends:<\/strong>
Dividend-paying companies can be ideal defensive holdings, depending on their other attributes. Favourable characteristics include strong balance sheets, sustainable earnings growth and management that deploys free cash flow wisely. To be avoided, says Russell, are companies that are highly leveraged, with low returns on equity and volatile earnings.<\/p>\n Blend of styles:<\/strong>
Though not strictly speaking defensive, style diversification can help smooth out market cycles, since value, growth and other stock-picking disciplines can be in or out of favour at different times. The strategy of Russell Focused Canadian Equity, which is a “large-cap blend” in the Morningstar Equity Style Box, involves employing multiple managers: Rondeau Capital Inc., whose style Russell describes as “defensive,” QV Investors Inc. with its “quality and value” discipline, and the more growth-oriented CGOV Asset Management. Each firm is responsible for contributing 25 to 30 of its best ideas.<\/p>\n Foreign holdings:<\/strong>
Along with their domestic stock selection, most retail fund managers will use non-Canadian holdings to diversify their Canadian stock portfolios and reduce risk. For that reason, it’s important for investors to realize that their Canadian stock funds won’t necessarily be purely Canadian.<\/p>\n By definition, funds in the Canadian Equity category may invest up to 10% of their assets in foreign securities. For funds in the Canadian Focused Equity category, up to 50% of the stock portfolio may be non-Canadian.<\/p>\n
At Russell Canada, the U.S. component, to a maximum 10% weighting, is part of the strategy for Russell Focused Canadian Equity. Health-care and technology are two examples of U.S. sectors where there is vastly more choice for stock pickers than in Canada. “There are great businesses to be found in the U.S.,” says Vall\u00e9e.<\/p>\n
Cash reserves:<\/strong>
Finally, cash can be used as a defensive tool by active managers. Until recently, “over the last two to three years, it’s been a one-direction bull market,” Vall\u00e9e says. “It’s been difficult for a stock picker, so the cash just built up.”<\/p>\n Conversely, after the Canadian market’s recent tumble, now would appear to be an opportunity for active managers \u2014 including those with defensive mandates \u2014 to deploy some of their low-yielding cash reserves.<\/p>\n","protected":false},"excerpt":{"rendered":"
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