Ashley Redmond: So, I’m here with Eric Bushell, who is well-known to Morningstar. He has won a couple of awards at the Canadian Investment Awards, including Fund Manager of the Decade and in 2009, Morningstar Manager of the Year. So, Eric just participated in, Where In The World To Invest: The Big Picture. Now, Eric, I wanted to ask you, you said that U.S. markets are actually more attractive than Canadian markets. Can you expand on that?
Eric Bushell: Yeah, sure thing, Ashley. Thanks for taking the time. So, the issues that we are seeing with the Canadian markets are really that the number of large liquid quality companies in the country is small. There may be about 35 stocks that fit the bill. And so as an organization that’s been investing here in Canada for a long time, we are finding that there are investment opportunity constraints. My sector portfolio managers simply can’t find ideas in this country in the healthcare area, in the technology area, increasingly, even in the mining area.
The best assets the best managements, the best most diversified companies in the mining sector are no longer Canadian. So it’s really a – it’s a product of years of consolidation that’s taken place, that’s really left us with less and less meat on the Canadian bone. That’s forcing Canadian asset managers to globalize their capability to get more plugged into companies from other parts of the world and I don’t see that stopping.
Redmond: And does this affect how Canadian companies view the TSX as a benchmark?
Bushell: I don’t think it affects the way that the companies look at the TSX. I think it affects the way that the investment managers should consider the TSX as a – or S&P TSX as a benchmark, because the concentration there is profound. We have three sectors; financials, energy and materials that comprise 80% of that market. Healthcare and technology, as I mentioned just now, really are less than 1% of the market each. Those are two of the biggest sectors in the U.S. So you can see this concentration risk that the benchmark is creating, and a lot of those sectors are actually correlating today. So this is creating an investment risk management problem for Canadians.
Redmond: And Scott asked – Scott, our CEO, was the moderator of the session, and he asked if there were any specific sectors that you are interested in and you said you were actually bullish on healthcare and IT. So just wondering what did you see in those sectors?
Bushell: Well, what I see is two of the biggest potential solution providers to unmet needs in the world and they are in healthcare and technology. There's lots of high-value, R&D, intellectual property. It’s a global opportunity set and the companies that are undertaking the real investments are principally in the U.S. and some European companies. So they have a global oyster of sales opportunities.
And the other thing is that these companies have seen their share values really just come straight down, honestly since the dotcom bubble. Healthcare companies were trading at 25 times earnings at that times, tech stocks at 35 times. Now both of these sectors trade on single-digit P/E multiples and are paying big dividends. We've consolidated the industries, there are fewer players, they are returning capitals through share buybacks, there’s a financial discipline and rigor that the falling values has brought upon the Boards and the managements, and so we see them as smarter with still good opportunities and the valuations look really tremendous.
Balance sheets in those sectors are very, very strong and the companies generate lots of free cash flow. So I challenge anyone who is interested in pursuing this idea to look at the outstanding shares of Intel. Take a look at that chart and it looks like a set of stairs. It’s just continually buying back shares and reducing that share count. That means that you own more of the company every single quarter, and so that's – this is the kind of thing that we think is going to be really a homerun.
Redmond: Great. Thanks so much Eric.
Bushell: Okay. You’re welcome.
