John O’Connell is not afraid to go very heavy on large capitalization, multinational U.S. stock names.
The Chairman & CEO of Davis Rea Investment Counsel simply believes it’s the place to be.
O’Connell is featured in a Special to The Globe & Mail article.
Here are some of the hi-lights.
by Brenda Bouw
Nobody can accuse portfolio manager John O’Connell of home bias.
In his $400-million portfolio, the chairman and chief executive officer of Davis Rea Investment Counsel holds about 95 per cent U.S.-listed names in about 25 stocks across sectors, including technology, banking, industrials and health care.
It’s been a good strategy so far this year, with the portfolio returning 17.6 per cent year-to-date as of July 27, slightly ahead of the S&P/TSX Composite Index at 15.5 per cent.
He says the performance also beat the S&P 500 and the Dow Jones Industrial Average, which returned 15.5 per cent at 14.3 per cent respectively so far this year (when converted to Canadian dollars).
“I just think it’s the right place to be,” Mr. O’Connell says of U.S. holdings. “We want to invest in companies that are multinational, that touch billions of people. Unfortunately, there just aren’t that many of those in Canada.”
Some of his top overall holdings are technology names like Amazon.com Inc., his largest holding representing about 8 per cent of his portfolio, as well as Google parent Alphabet Inc., Facebook Inc. , Apple Inc. and Microsoft Corp., which each represents about 3 per cent to 5 per cent.
While tech valuations are high and some investors worry about growing government interference in the sector, Mr. O’Connell isn’t overly concerned.
“It’s really going to be difficult to legislate away what consumers want,” he says. “I’m not downplaying that there are problems, but there’s no cohesive global opinion on what to do and on what the problems actually are.”
He prefers to focus on the innovation, massive markets, ability to scale and huge free cash flow these tech names generate.
“They’re the most profitable companies in the world,” he says. “They’re always going to trade at a premium valuation. I don’t think you can say these companies are expensive at all.”
His three favourites right now are Amazon, Google and Facebook.
“These are some of the most dominant companies in the world,” Mr. O’Connell says of the big tech names.
“These companies are successful because they create delightful and powerful services for people. That drives huge revenues and profits that the companies, in turn, reinvest for the future. What’s not to like about that?”
Click here for all of O’Connell’s stock ideas in the full The Globe & Mail article. (Subscription required)
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