Daniel Bubis, president and CEO at Winnipeg-based Tetrem Capital Management Ltd., says the recent correction in the equity market was a modest aftershock that was to be expected in the wake of the global financial crisis of 2008-2009.
"The aftershocks are diminishing in magnitude and there are powerful reasons to believe that the bull market, which began after its low in March of 2009, remains intact," says Bubis.
For a start, he says, although the S&P/TSX Composite Index has almost doubled since its March 2009 low, the valuation of this index is in line with its average over a 20-year span.
Bubis says company fundamentals have improved dramatically over the last two years. "There is good corporate profitability, solid balance sheets, and companies are awash in cash." This means, he says, that they can raise dividends, buy back shares and make acquisitions.
Another plus, he says, is that the interest-rate environment remains supportive. Even though rates are edging up slightly, they are still low by historic standards. "The major central banks around the world are in no rush to crank up interest rates significantly. The steep-sloping yield curve, with the short end lower than the long end of the curve, is a positive for the economy."
Finally, says Bubis, investor sentiment, which got ahead of itself at the beginning of this year, has become more cautious. "This is the salutary effect of the recent correction." Investor sentiment, he notes, is a contrarian indicator of stock-market direction. "If it is negative or cautious, this is a bullish signal, and conversely if it is too euphoric, this is a bearish signal."
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Of the macroeconomic picture, Bubis considers that global growth remains intact, despite the setback in Japan and the ongoing concerns about peripheral Europe. He therefore "continues to be enthusiastic about commodity-related stocks."
At the end of June, Tetrem had assets under management of $6.2 billion, of which $5.7 billion was on behalf of CI Financial Corp. Heading the list of mandates are CI Canadian Investment 
, with assets of $4 billion, and CI Canadian Investment Corporate Class, with $833 million.
Tetrem's role at CI was expanded earlier this year to include three funds that formed part of the Hartford fund family acquired by CI and rebranded under the Castlerock name. They are: Castlerock Canadian Value, Castlerock Canadian Dividend and Castlerock Capital Appreciation. At the end of June, these three funds totalled $243 million and are included in the $5.7 billion.
The flagship fund, CI Canadian Investment, has foreign holdings. At the end of June, the fund held 72.2% in Canadian equities, 25.3% in foreign content and the remainder in cash and bonds.
Bubis and his team target stocks that trade below Tetrem's estimated intrinsic value of the business. In the commodity-related sectors, Bubis notes that he was able to use the second-quarter weakness in the materials sector to initiate a holding in Agrium Inc. AGU.
"I am enthusiastic about agricultural stocks, and Agrium is a leading global fertilizer producer and marketer," Bubis says. "Agrium is successfully growing its retail franchise." Its stores supply agricultural products and services in North America, South America and Australia.
The stock trades at 11 times earnings-per-share estimates for the next 12 months. In addition to Agrium, Bubis likes rival Potash Corp. of Saskatchewan Inc. POT, a major holding in the fund.
Also in materials, Bubis used the weakness in this sector to add back to his holding in Teck Resources Ltd. TCK.B in the latter part of the second quarter. Teck is a diversified resources company that produces copper, metallurgical coal, zinc and energy.
"I considered that the challenges facing Teck were temporary and there was value to be had in the stock," says Bubis. In the wake of Japan's triple disasters in March, Teck's delivery of metallurgical coal suffered. "My call was that this was a short-term issue." Bubis had trimmed his holding in Teck at higher prices early in the year. The stock, he says, had risen sharply and "was due for a pause."
| Agrium | Potash Corp. of Saskatchewan Inc. |
Teck Resources Ltd. |
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| July 12 close | $84.41 | $55.59 | $49.21 | |
| 52-week high/low | $98.02-$58.58 | $63.19-$31.46 | $64.62-$32.36 | |
| Market cap | $13.3 billion | $47.5 billion | $29.1 billion | |
| Total % return 1Y* | 40.8 | 73.9 | 44.7 | |
| Total % return 3Y* | -6.1 | -9.0 | 5.0 | |
| Total % return 5Y* | 25.6 | 38.4 | 8.2 | |
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| *As of July 12,2011 Source: Morningstar |
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In energy, Bubis continues to champion the service providers. "These stocks have had a good run, but there is more to come." Their strength has so far been driven by the robust oil price, he says. "They have significant operating leverage if the natural-gas market rebounds."
Bubis's favourite energy-services companies include Trican Well Service Ltd. TCW, Precision Drilling Corp. PD and Savanna Energy Services Corp. SVY, as well as Mullen Group Ltd. MTL.
He points out that Mullen, which provides specialized transportation and environmental clean-up services to the energy sector, has "doubled its dividend" in 2011 to 25 cents a quarter from 12.5 cents a quarter in 2010. Bubis highlighted all four of these energy- services stocks in the Canadian equities roundtable published by Morningstar in January of this year.
Turning to other sectors, Bubis initiated a holding in Shaw Communications Inc. SJR.B on recent weakness in the stock. A diversified media/entertainment and communications company, Shaw "had traditionally traded at a premium relative to its peers."
But the premium narrowed significantly, says Bubis, on investor concerns about increased competition in its cable business and the prospect of large capital expenditure in its wireless business. "Shaw is responding to both these challenges well," he says, "and I was able to buy this solid franchise at a good price."
In the financial-services sector, Bubis sold his holding in Bank of Montreal BMO earlier this year and used the proceeds to add to his position in Toronto-Dominion Bank TD, his largest holding in the fund.
"TD is a well managed bank and I think that its growth strategy in the United States is superior to that of Bank of Montreal," he says. "I like TD. A nice benefit of investing in this stock is that the probability of the bank producing a negative surprise is lower than that of its peers."
