Why Canada’s top wealth advisor is avoiding banks and consumer stocks in 2023

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With persistently high inflation, rising interest rates, geopolitical issues and fears of a recession that some believe may already be here, the coming year looks set to be another difficult one for investors.

Consumer-facing stocks like retailers and banks could be particularly challenged in Canada given our rising debt levels, says David LePoidevin, senior portfolio manager and senior investment advisor at the LePoidevin Group at Canaccord Genuity Wealth Management in Vancouver.

“The Canadian consumer is very vulnerable, much more than [that of the] United States,” said Mr. LePoidevin, the No. 1 advisor in The Globe and Mail and SHOOK Research’s second annual ranking of Canada’s Best Wealth Advisors.

Globe Advisor spoke to Mr LePoidevin about his prospects for 2023, including his highest conviction trade.

What are your investment prospects for the coming year?

We think commodities and some industrials such as auto parts makers and engineering firms could do well.

Our theme for next year is to avoid names closely associated with Canada’s consumer and banking sectors. We’ve had virtually no loan losses in Canada’s banking sector for the past 30 years, but I think we’ll see some next year, starting with the smaller, riskier lenders.

Life insurance companies in Canada seem much more attractive to us than banks. Bonds also remain unattractive in our view. I know we’ve seen a rally in bonds over the past few weeks, but I believe we are in a multi-year bond bear market given the highly inflationary environment.

For me, the 60-40 balanced funds don’t work anymore. In five years it is very likely that balanced funds will no longer exist.

Can you tell us more about your view on commodities?

I don’t think the Federal Reserve will hike rates until a deep recession, which means commodity demand should remain relatively strong.

We don’t love energy as much as we did a few years ago, but I think everyone should be in touch with energy, copper and gold. These stocks are cheap and I believe we are in a commodity bull market.

How should investors deal with geopolitical issues?

You cannot predict geopolitical events like this [Russian president Vladimir] Putin will do or what might happen in the Middle East. However, you may find opportunities in sellouts related to these types of events that may seem overdone.

We believe Europe is currently attractive, including companies such as Unilever PLC UL-N, SAP SE SAP-N, BMW AG BMWYY and Volkswagen AG VWAPY. Europe is undervalued while the US is slightly overvalued. It’s an opportunity many investors aren’t paying attention to.

What investments do you like right now?

My greatest belief is preferred stocks of non-bank companies like BCE Inc. BCE-T and Enbridge Inc. ENB-T. The federal funds rate has risen dramatically, and some of them are paying dividends of around 8 percent.

These are interest rates not seen since the early 1990s. It is exciting. Yes, the Bank of Canada may cut interest rates, but I don’t think we will go back to zero or near zero percent interest rates.

What advice do you have for investors in 2023?

You must be a stock picker and a bit of a lateral thinker. Investors need to sit back and buy good companies.

This interview has been edited and abridged.

– Brenda Bouw, specially for The Globe and Mail

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– Employee of the Globe consultant