FOCUS 2025: Staying resilient in turbulent markets – Dan Dupont

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I feel like we have some initial thoughts on the video.

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Yeah, I think the pronunciation of Saint-Herménégilde was very difficult

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for the guy.

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Poor announcer. Dan, it's great to have you here today.

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Thank you for joining us.

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I'm sure a lot of the crowd here knows who you are, the audience online and in

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the room, as you have been with Fidelity for a very long time now

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really making your mark--

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I'm not that old.

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--in a great way, in a great way.

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The last time we spoke was back in May, and you were having a lot of fun.

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I think that fun might have been stemmed by an event that Sam,

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Morgen and Naveed were just referencing, which was Liberation Day.

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We're going to get into how you're feeling today a few months post that but

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before just to kick everything off, because there's a lot of fun places we can

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go with your style, your portfolio, your positioning, let's maybe

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start with your process and really just laying the foundation and

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then leapfrog into a lot of fun topics.

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To explain what I did this year which was a lot of--

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Make it all makes sense.

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--movement. To summarize, like you said,

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most people kind of know the process by now.

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Hopefully, if you're invested in Canadian Large Cap you've heard it several

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times but, obviously, try to protect capital, so try to project

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downside. That's the overarching goal of everything I do,

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and then try to maximize upside once that's taken care of.

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We do that by investing in companies who have a

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combination of, hopefully, the best balance sheet possible, best management

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team possible, best return on capital possible.

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You can't get the best of all worlds all the time but I certainly try to

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have a higher quality portfolio than average.

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The next point has turned out to be the most important one.

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It's being patient. The patience to let the market come to us for prices

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and valuations to get to a level that are attractive to us, and

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then harvest these things several years down the road once

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the market has recognized all of that.

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Finally, not trying to paint myself in a corner, not predicting the

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unpredictable and embracing my ignorance, as I like to call it, what

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we try to do here in this process is not to predict interest

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rate, currency movements and inflation

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but really, or commodity prices for that matter, but let them come to us and

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wait for opportunities where it's just basically a no-brainer, where you don't

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need to be that smart to invest.

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If you have the patience to get to these places

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then returns are going to be quite interesting.

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As I said, the most important part of all of this is to have the patience to

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let different securities or sectors get to the price you want to pay.

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I think that word patience, people have heard from you for many, many years and

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we saw that come to fruition in April.

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Let's touch on the Liberation Day because I think that was a huge catalyst to

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2025 and what we've seen and then where we're at today.

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Maybe touch on for the audience what happened.

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So Wednesday, April 2nd was Liberation Day announcement.

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I know that weekend for you was very busy.

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I'll let you tell the story, but just going back to the strength

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of Fidelity and what you were able to do because that patience paid off.

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What we do, obviously, is, as was said in a lot of

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presentations up to now including the previous one, you need to be ready

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for these events. You can't just show up that day and just try to think about

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what we should buy.

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Our analysts around the world meet with companies every day, every week,

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every month so I have an understanding of where they stand, what

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my watch list is. I just have discussions with them, I travel the world,

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et cetera, so that on that particular week we know how to react.

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Let's be honest, Liberation Day was a little bit of a different angle from

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anything we'd seen. It was a little bit more aggressive than we expected.

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We had prepared for what Trump was going to come out with but

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it really wasn't exactly what we expected, obviously.

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That really rapid reaction time, knowing your businesses inside

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out, was really, really helpful.

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To add to the urgency on the Friday as all these stocks were

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hitting my price points I had been sitting on a lot of liquidity.

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I had had that patience that I talk about, which is really important for this

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process. We were ready to deploy, I was ready to invest a lot of

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money. I set up this internal chat with all the Canadian and U.S.

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analysts which I called tired of winning chat.

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For many weeks a lot these analysts thought I was talking about me

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whereas, obviously, it's kind of this Trump quote, but it

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was really efficient as they were just shooting ideas at me.

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All the analysts were getting involved as well because some sectors are really

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just adjacent, they're really close, they impact each other.

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At the end of that day the trading sheet showed that I

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had bought over a billion dollars of securities. You sell arbitrage,

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you sell bonds, you sell other things that are less volatile, have

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staples and things like that. Continued over the weekend, like you said,

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bought a lot of financials in Asia, a lot of Japanese

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banks and insurers, and then overnight also

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bought a decent amount in Europe, such that at the end of the day on Monday,

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April 7th, I believe, Canadian Large Cap Fund was fully invested,

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no arbitrage, no bonds, no cash, not crazy

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aggressive, we were still following the process

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and I still thought that we weren't at a place where the portfolio should

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be much more cyclical but we

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were fully invested

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It's exciting. I have two follow up questions to that.

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One, how many hours did you sleep that weekend?

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On the night from Sunday to Monday I slept about an hour, an hour

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and a half because Asia is open from 08:00 and then I

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punched in all my trades, punched in my trades for Europe before it

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opened and then woke up for kind of the European open.

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Wild, absolutely wild. The tired of winning chat, I love the name, by the way,

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is that still going, are people still excited?

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I'm sure the analysts learned a lot from that chat.

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Good question.

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I've sent the analysts a few thoughts two, three times but

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nothing else.

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I'm hoping for that chat to be live again soon.

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Let's hope for some volatility.

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There you go.

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We'll be busy.

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Fire that back up. That's perfect. That's a great way

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to set the stage for where we are at today.

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We're entering Q4 and we've seen the market's rebound

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quite a bit, actually, since April. There's been some dispersions

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that, potentially, have created some entry points.

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Yes, no, that's what we're going to get into but how are you positioning the

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portfolios to take advantage of the current environment while

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still looking at risk that's on the table?

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I would say to be completely blunt the positioning right now, if we want to

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start there, is the most defensive I've ever had.

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It's a bit more defensive than January or February this year.

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It's more defensive than January 2020.

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It's more defensive than the fall of 2018.

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I'm really struggling to find ideas.

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That's, basically, the conclusion here. I read all of our internal research

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every day. I get three research packages from our analysts, one for the

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Americas, one from Europe, one for Asia.

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I try to look for ideas every day.

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They know my process so there's a lot of discussions going on.

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I meet with companies as well that are close to my price point.

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It is getting really difficult.

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If we go back one year, always look for ideas, there's

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usually quite a few that pop up.

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We had quite a few in emerging markets last year.

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In Canadian Large Cap I owned a Brazilian brewer, I owned a company in Japan,

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also in the spirits industry, I owned a company in South

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Korea in the tech industry, and I own a bit more European

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stocks. I was more involved in China.

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In the last year everything's kind of floated up in valuation.

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There's less attractiveness, less margin of safety.

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For me, it has meant just trimming here, trimming there.

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That was going to be my question. Are you still holding those or have you...

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I'm out of Brazil, I'm out of Japan, I'm out of South Korea

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in Canadian Large Cap Fund. I'm still in China, there's still a few

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percentage points there. I'm quite heavy in Europe, that's the place where we

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have a lot of investments.

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I would say the U.S. specifically, the divergences are interesting.

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We've seen a lot of uplift in valuations.

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Anything related to AI, tech, even utilities

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have started, obviously, to pick up from all that energy requirement.

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Historically, the defensive sectors have been health care,

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staples and utilities. Now utilities have been kind of swept up in

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valuation from all of this demand, this growth so it only leaves

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health care and staples which are quite depressed in valuation

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relative to the rest. That's where I'm doing a lot of work.

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Sometimes we'll hold companies for

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years and years and years, the core of the portfolio, the Metros,

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The Couche- Tards, but if the market gives us many years of returns and a fully

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valued stock after a few weeks, then we'll do that.

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There's a few points here.

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One, health care is interesting. I'm looking aggressively so we might find more

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ideas that might go up in terms of positioning in the portfolio.

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Staples is also there.

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The liquidity in the U.S.

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is quite interesting. If we go back to Liberation Day when

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I bought a lot of Japanese financials, that was mostly

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for my international mandates, NorthStar and Global

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Value Long/Short, so I wasn't buying excessive amounts.

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Some of these banks and

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insurers in Japan took me days to buy.

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There's really less and less liquidity when you go out of the S&P

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500. The U.S. is really where all the liquidity is.

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That's why we're seeing quick moves sometimes in stocks that you would think

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are kind of liquid, they're well-known.

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We own Nestlé in Large Cap.

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They reported this week, slightly better than expected, the

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new CEO doing a slightly better job than expected, stock popped up almost 10%.

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It's just the way of things today.

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There's this disregard for anything that's not tech, AI, growth,

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US-centric, there's less liquidity there.

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For us, we need to be there before, we need to have invested

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there before, or if the liquidity is there like in the U.S.

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health care market we can take advantage of that too.

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You do have 49% outside of Canada, going back to the liquidity comment are you

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finding that to be a challenge? I know the Fidelity trading desk has a lot

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of manpower and a lot of reach, does that work to your favour?

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It's certainly helpful to have our amazing traders.

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I do have a chat with the traders that goes on, that is a very active one.

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Over time the process that we're following here has been attracting a lot

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of attention from outside. We are a partner of confidence

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for a lot of buyers and sellers out there.

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Sometimes liquidity is a disadvantage slightly but for us it has

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become a really big advantage.

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When you have to do that you probably got a tap on the shoulder from whatever

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the risk, or they change the portfolio manager.

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The problem you have is who do you tell that to?

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If you tell somebody who might be a buyer but decides not to buy and they have

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a big mouth then eventually everybody is going to know that you're a big seller

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out there.

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We have become a partner of confidence where I sit in Montreal

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on my own, I don't like to talk to people, everybody knows that.

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They'll call us, they'll call the trading desk and say, you know, in

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confidence, we have a big block of this.

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We ended up buying 7 million shares of that at a 3% discount.

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over half of our trades, I think, are blocked.

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We get a call, we buy 300,000 shares.

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If we want to sell they're going to be blocked as well to somebody who's trying

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to buy. Like I said, we let the market come to us.

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The expression with the traders is we answer the phone.

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We pick up the phone, we don't call anybody.

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Liquidity for us, it's not as big of a deal.

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That's such a great opportunity to have, though.

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That's a great luxury.

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It is but it's been built over 15 years.

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Excellent. Let's circle back.

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Hello, investors. We'll be back to the show in just a moment.

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DialoguesFidelity podcasts available on Apple, Spotify, YouTube, or wherever

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else you get your podcasts. Now back to today's show.

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Excellent. Let's circle back.

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You started touching a little bit on the global opportunity set and

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where we're at today. If we're looking from the macro, there's some constraints

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in the U.S., we'll get to the Canadian market, but from a global perspective

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you do run some global mandates.

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What are your thoughts around that?

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Like I said, I think the opportunity set is a little lower than it

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was. We've seen revaluations in a lot of sectors.

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Financials is a really specific one where European banks

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were really cheap and they went up massively.

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The confidence is back, they're trading, basically, at book value again.

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Ever since 2012 they were up and down, the

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confidence was gone for a while and now it's pretty much back.

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It's the same in Asia where Chinese banks were really

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depressed in valuation a few years ago, now people kind of like the dividend,

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nothing bad is happening every quarter. Every quarter there's a bit more

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confidence so they're going up.

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The Japanese banks and financials in general are doing well because inflation

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is just not letting up.

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Central bank does not want to raise rates too quickly, which is kind of

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tough on the local people because their yen is going down every week because

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the financial authorities don't care about the yen.

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They're afraid to raise rates.

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And it's not because of face? I know that's a big thing over there.

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Is it about saving face with the people or...

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They haven't seen inflation in so long and they've

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fought so hard for decades to fight deflation.

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Now that they have inflation they're afraid to really kill it too quickly by

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raising rates too fast.

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I kind of get that angle but from an outsider's perspective, at this

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point they look a little late. I think the currency markets are trying to tell

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us that as the yen just keeps going down.

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All that to say, for me there's still opportunities in China.

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I was there with Patrice this spring, in Japan, we were

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also in France. I'm seeing less and less, for my

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process, opportunities outside of

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Europe, really.

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You mentioned a great part, Europe, might as well go there, it's a perfect

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segue. You've held some companies there for quite a while now, been talking

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about spirits, been talking about tobacco, those have been a great opportunity

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that you found in the way that we're seeing the industry shift.

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I know you're going to touch on this but tobacco, you said we're going to have

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rebrand to be the nicotine industry, not the tobacco industry anymore.

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Talk to us about what keeps you still excited to be in those spaces.

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From a big picture perspective I think you get there

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naturally by thinking about what happened over the last 10 years.

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Growth outperformed value, U.S.

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outperformed the rest, big outperformed small.

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Everybody now thinks there's not going to be any recession for

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the next two through four years so staples and health care get depressed,

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obviously, more outside of the U.S.

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than inside of the U.S.

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so I've naturally been attracted to those valuations from a bottom-up

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perspective but it can be easily explained from a top-down.

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I've been in tobacco for many years now.

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The story has completely changed. It was one of a really depressed valuation,

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a misunderstood structure in the income statement from my perspective.

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Ever since I covered Rothmans as a young analyst in 2001 I rapidly

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understood that not many people in the financial industry understood the

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mechanics of how amazing it is to have volumes go down 5% a year

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and prices going up 10.

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You have zero spending in capex, your valuation is six times

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earnings so you can buy as many shares as you want for the cheapest price

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possible, which means that your earnings next year just keep going up.

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The algorithm here was just phenomenal for a long time.

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We've made a lot of money in Large Cap in tobacco.

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There's a few years where we got a few more questions about the ESG aspect,

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I'll be honest, but we got through those.

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We're here today.

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The story has changed as well because it's now a nicotine product,

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like you said. The traditional cigarette consumption, at least in the developed

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world, is changing rapidly into one of a nicotine pouch.

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There was the vaping in between which was really not any better than

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traditional cigarettes. The nicotine pouch product,

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everybody's trying to prove that it has to be bad for you in some way.

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It's like this neat little pouch, there's pure nicotine in it

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that was made in a lab that you put in your mouth.

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It's just exploding in growth in the last three years.

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I think you were saying they're even trying to show some health benefits

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towards having it.

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Well, they're trying to prove that it's bad for you.

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A little bit like coffee, they can't ... it's really hard and they're actually

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finding some benefits.

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40% of U.S. Division I college athletes were

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tested positive for nicotine last year in one of these surveys.

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They're trying to see what it could do, it seems to increase concentration,

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increase athletic ability, in some survey, in

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some research. It's proven difficult to

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show negative impacts.

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That means that a lot of doctors are just saying, you know what, stop smoking

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cigarettes and switch to that at the very least because it's definitely better

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than cigarettes. All that to say there's been massive growth there.

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Holding Imperial Brands that we've had for a long time or British

[00:18:31.176]

American Tobacco that we had for long time, the story has changed into

[00:18:35.147]

one of growth now. It used to be 0.1% of

[00:18:39.251]

sales and it's gone up to the point where it actually matters now.

[00:18:41.987]

If you're having 3% of your sales growing 150% a year

[00:18:46.091]

that really matters at the top line.

[00:18:48.694]

Their multiples have gone from 6 times to 11 times over the last two, three

[00:18:52.397]

years. Even Philip Morris, which was the one first great brand

[00:18:56.435]

there, when they bought Swedish Match it went all the way up to 25 times

[00:19:00.072]

earnings. The industry has really transformed.

[00:19:01.907]

We made a decent amount of returns in industry

[00:19:06.812]

and I think the story still is going to evolve from here.

[00:19:09.648]

Let's pivot to spirits then, the story behind spirits.

[00:19:12.584]

Spirits is a newer story.

[00:19:15.787]

It's not years long, it's about a year plus long.

[00:19:19.725]

It's one that, for me, is really compelling.

[00:19:21.994]

It has everything that I'm looking for in terms of a sector I want to be

[00:19:26.064]

involved with. The three hits against spirits

[00:19:30.169]

companies in the last year and a half, two years have been,

[00:19:34.506]

one, the COVID overhang has hit their profitability massively.

[00:19:37.142]

They've had a lot of inventory because they thought that this whole

[00:19:41.213]

COVID bump in consumption ...

[00:19:43.849]

because we were stuck inside, we all became alcoholics, we were just

[00:19:48.287]

renovating our kitchen, that's pretty much the only thing we could do.

[00:19:52.057]

Volumes exploded and it was true everywhere.

[00:19:54.393]

People got cheques through the mail, they bought tequila and they were just

[00:19:57.996]

buying champagne hand over fist. That's really rolled over.

[00:20:01.433]

That's number one.

[00:20:02.167]

Number two, young people don't drink as much, we all know that.

[00:20:05.337]

It's really a known fact at this point.

[00:20:07.773]

I think it's a little bit overplayed because, yes, people don't drink

[00:20:11.877]

eight beers anymore in a night but what they'll switch to is buying two shots

[00:20:15.714]

of tequila which are, basically, better margins for a lot of these companies.

[00:20:19.885]

Finally, the third and really important point is the GLP-1 drugs.

[00:20:22.955]

There's a lot of just functional

[00:20:26.959]

alcoholics out there.

[00:20:28.794]

You might know some of them, I know a few of them.

[00:20:31.863]

I can't believe they can drink two bottles of wine every night and just

[00:20:34.566]

completely normal. But hey, to each their own.

[00:20:38.036]

But it was a really big worry, it was a big worry and every quarter that comes

[00:20:42.040]

out we see that it's really not that impactful.

[00:20:44.943]

I was going to say you'll be standing at the bar saying what people can and

[00:20:47.412]

can't drink.

[00:20:47.512]

Bars are the same everywhere.

[00:20:50.349]

Patrice and I were in Tokyo earlier this year, same brands, all the same

[00:20:53.852]

brands. Here, Florida, same brands.

[00:20:55.554]

Go to my place in Montreal, same brands.

[00:20:58.890]

It's all the the same brand. They all have the distribution for it.

[00:21:01.793]

It's all the same three, four, five companies.

[00:21:04.763]

They used to trade at 50, 60 times earnings because you can't disrupt

[00:21:09.635]

tequila with AI, it's really difficult.

[00:21:12.170]

If we lose our job to AI we'll be drinking more anyway so it's

[00:21:16.208]

great. These businesses are fantastic.

[00:21:17.509]

Things are looking up.

[00:21:18.243]

Very resilient businesses.

[00:21:20.379]

Nicotine pouch and you're good for the night.

[00:21:25.417]

You're setting a really healthy lifestyle for everyone here.

[00:21:28.620]

Hey, you know, I have one drink, one drink.

[00:21:33.458]

Again, tonight we're going to have the same bottle.

[00:21:35.961]

These businesses were at 60 times earnings.

[00:21:38.997]

I never thought we would own them in Large Cap, ever, because they were so

[00:21:43.001]

expensive. These three hits against them pushed them down.

[00:21:46.838]

The last one, the GLP-1s really hit them down so, basically,

[00:21:51.009]

between 12 and 18 times earnings, good balance sheets after

[00:21:55.447]

an inventory overhang. These are beautiful businesses, and not

[00:21:59.551]

very cyclical, somewhat cyclical but not hugely.

[00:22:03.588]

Everything's cyclical. Groceries are cyclical, everything's cyclical, even cell

[00:22:07.859]

phone services and people kind of ...

[00:22:11.163]

you're trying to find the least cyclical thing you can find.

[00:22:13.799]

Frankly, after such a downdraft in demand I think these businesses are

[00:22:17.936]

unbelievably resilient to any kind of economic shock we could get.

[00:22:21.640]

They fit what Canadian Large Cap is meant to have.

[00:22:23.775]

Perfectly.

[00:22:24.276]

Absolutely. We do have a question from the audience.

[00:22:27.479]

There have been a number of quick dips in the market due to Trump making bold

[00:22:30.749]

claims and, obviously, leveraging media to do that.

[00:22:34.086]

How do you take advantage of these periods?

[00:22:36.822]

If the opportunity is there, if it hits my price we'll

[00:22:41.526]

do the move. I think this might be a good time to explain

[00:22:45.731]

also the interaction we have with our analysts.

[00:22:47.766]

I will take advantage of these quick dips

[00:22:51.803]

and we are ready and our analysts know everything.

[00:22:54.473]

But I think, and Hugo might talk about this

[00:22:58.443]

as well when he comes on stage, I think it's something that we talk about a

[00:23:02.280]

little bit, the analysts, we hire the best people in

[00:23:06.451]

Canada. We have hundreds of resumés, we hire one or two people.

[00:23:10.756]

They haven't seen other cycles.

[00:23:13.892]

We had an analyst from Toronto in the Montreal office two weeks ago.

[00:23:17.662]

It's very foreign to the younger generation that something might not

[00:23:22.167]

be bought for momentum, for growth, but you actually have kind of

[00:23:26.271]

a discounted cash flow view of a price that you want to pay and

[00:23:30.342]

you actually draw a line in the sand, even if the stock's been going down every

[00:23:33.678]

day for two months and then it just gaps down on volume, maybe

[00:23:37.883]

that's the price I want to pay.

[00:23:40.619]

It's going to be fun. I'm feeling old a little bit because I'm teaching a whole

[00:23:44.689]

lot of things to people, to our young analysts, but it's nice, it's really fun

[00:23:48.260]

to interact with them. Also, the fact that we have a rotational program in the

[00:23:52.364]

analysts is good for us also to learn new things.

[00:23:56.134]

The new view in a sector pushes you against what you think you know

[00:24:00.172]

about a company. Maybe you had a new analyst three years ago come on the

[00:24:04.209]

sector and you agreed with everything they said and then this new person comes

[00:24:07.879]

in and they completely changed and they have this new angle, something's

[00:24:11.616]

changed. Oh wow, and it's just--

[00:24:13.885]

New perspective.

[00:24:15.120]

--a fantastic new angle that you didn't think about.

[00:24:17.489]

So yeah, new perspectives are fun too.

[00:24:19.224]

We both learn from each other but I feel...

[00:24:21.460]

You've said in the past, we haven't had a recession for about 15 years so

[00:24:24.696]

they've only known growth, they've only known up.

[00:24:27.299]

They haven't known a credit cycle.

[00:24:29.734]

People who've gone through the COVID month

[00:24:34.539]

of downdraft think they've gone through a credit circle but name me a company

[00:24:38.143]

that went bankrupt. Can't.

[00:24:40.512]

The government came in, saved everybody.

[00:24:42.814]

That's kind of the new view that the government will always save everybody and

[00:24:46.151]

that everything is bulletproof. Then we have one or two bankruptcies in

[00:24:49.921]

structured products and everybody's freaking out that, oh, my God, some

[00:24:54.025]

of these were actually double collateralized, maybe there's

[00:24:58.163]

more risk in these CDOs than we thought.

[00:25:01.266]

You covered banks during 2008 so you have a lot to teach them.

[00:25:04.236]

I covered banks in '08 so, unfortunately, I've seen the bottom of the abyss

[00:25:08.206]

and it's probably made me more depressed than I should be.

[00:25:11.176]

I know the risks that are in these structured products very,

[00:25:15.213]

very well.

[00:25:16.481]

Let's talk about something that has been somewhat exciting because

[00:25:20.552]

gold could potentially go, what, 4,000, 5,000?

[00:25:24.789]

We have a question here coming in, what are your thoughts around gold?

[00:25:29.060]

I do have thoughts. I can't really say what we did

[00:25:33.098]

recently. We had a small position in gold stocks earlier this year in Large

[00:25:36.968]

Cap. I covered gold for many years, I ran the gold fund so I have an

[00:25:40.972]

opinion.

[00:25:43.008]

I think it's pretty simple how to analyze where gold is now.

[00:25:47.345]

The whole thing is pretty simple to summarize.

[00:25:50.148]

Gold is a market that has 250,000 tons.

[00:25:54.052]

If you put all the gold in the world in one nice little cube it fits under the

[00:25:57.589]

Eiffel Tower so there's really not that much around.

[00:26:00.959]

A lot of it is in jewellery, a lot of is in central banks, individuals also

[00:26:05.030]

own a lot of it, mostly in India because of the cultural

[00:26:09.134]

background of gold.

[00:26:11.703]

From 15 years when people were buying and selling gold it was kind of

[00:26:15.974]

stable. You could figure out that based on real rates in the U.S.

[00:26:19.444]

you could know where the gold price should be moving.

[00:26:23.682]

Actually, at least it explained it.

[00:26:27.085]

If you had $100 million in wealth your choice between U.S.

[00:26:31.189]

government bonds and gold was, well, here in U.

[00:26:34.459]

S. government bonds, what's my real return?

[00:26:36.761]

If rates were at zero and inflation was 3%, let's say in 2011,

[00:26:40.932]

'12, '13, that was pretty bad so you bought gold.

[00:26:45.170]

If rates are 4 and inflation is 1 then your purchasing power

[00:26:49.140]

goes up 3% every year. That's pretty good so you're not going to buy gold.

[00:26:51.776]

That explained it for a while.

[00:26:54.879]

Before all of that, '98 to 2002 central banks were heavy sellers.

[00:26:58.717]

They sold 400 tons a year. They got together, they signed an agreement that

[00:27:02.120]

they weren't going to sell more than that because it was putting so much

[00:27:04.823]

pressure on the gold price.

[00:27:07.225]

The price still went below $300 an ounce, which is crazy to think

[00:27:11.196]

about today. Now we're at the other end of that spectrum.

[00:27:14.099]

Why? Because when Russia invaded Ukraine the U.S.

[00:27:17.669]

decided, I'm not sure it's a smart decision, decided to put sanctions

[00:27:21.840]

on foreign exchange reserves of U.S.

[00:27:24.376]

Treasury bills and U.S. bonds for up to $300 billion for Russia.

[00:27:29.481]

Obviously, over the last few years all the central banks around the world are

[00:27:32.450]

thinking, well, that could happen to me too, I might diversify a little

[00:27:36.421]

bit. Gold is a very small pool of money and pool of assets

[00:27:40.659]

to that was one area they decided to go.

[00:27:42.527]

I think recently there's a bit of a fever around it.

[00:27:46.097]

It has become really difficult to predict the gold price because it doesn't

[00:27:49.134]

follow real rates at all.

[00:27:51.636]

It's really difficult to know where it's going to go, how aggressive central

[00:27:54.739]

banks are going to be buying it because they were selling it aggressively in

[00:27:57.676]

'99, 2000, and now they're buying it aggressively.

[00:28:01.079]

We'll see where it goes. I'm not shorting gold in my Long/Short Fund

[00:28:05.083]

but I don't own really any material amount also.

[00:28:08.620]

I think, for me, I let things come my way.

[00:28:11.289]

I buy them when they're cheap, when they are obviously depressed.

[00:28:14.092]

That's clearly not the precious metals market right now.

[00:28:17.362]

I understand the dynamics but can I predict the gold price from here?

[00:28:21.066]

No.

[00:28:22.600]

We only have a couple minutes left and we have a lot to get through still

[00:28:25.403]

because there's a lot happening.

[00:28:27.172]

Let's give some quick thoughts on Canadian equities right now.

[00:28:30.675]

There's no sector that's incredibly attractive to me.

[00:28:33.178]

I just have to pick my spots.

[00:28:35.080]

We have a few telecoms, we have a few food retailers.

[00:28:40.118]

Financials have never been really my cup of tea in terms of taking risks,

[00:28:44.122]

in part because probably I was the bank analyst in '08 and I know what can

[00:28:48.093]

go wrong. I know that when it comes to financials or structured products

[00:28:53.064]

there's a giant amount of assets and a giant amount of

[00:28:57.001]

liabilities and you have this equity is the sliver of hope

[00:29:00.972]

between those two. You try to analyze these two and sometimes you misprice

[00:29:06.177]

the assets quite materially so you know you get

[00:29:10.148]

to a point where basically there's no equity left.

[00:29:12.584]

In Canada I'm just picking [indecipherable] spots. We made a decent amount of

[00:29:16.554]

money in Saputo, which was an interesting story that I knew very well as an

[00:29:20.058]

analyst on it in '01, '02, '03.

[00:29:22.460]

I've been following it ever since, never owned it and then we started buying it

[00:29:26.297]

last year. Empire, I also covered as an analyst, became cheap enough, we

[00:29:30.368]

made a decent amount of money there.

[00:29:32.737]

Open Text, boring stories that nobody's looking at because they're looking at

[00:29:36.441]

the shiny objects of AI and large-cap growth.

[00:29:39.077]

Some of these other stocks get put by the wayside

[00:29:44.048]

and that's where I have to look.

[00:29:46.184]

Right now I'm buying one every day, two, three basis points that I really

[00:29:50.255]

like. Might end up in the top 10 at some point but

[00:29:54.225]

I think it's completely mispriced, not too cyclical.

[00:29:57.695]

I would say one thing I've been getting better at generally, and

[00:30:01.933]

it's proven in many positions in Canada, is to buy

[00:30:06.271]

businesses that are higher quality at a slightly higher multiple and

[00:30:10.708]

be more patient on the selling side.

[00:30:16.114]

Max congratulated me on that a month or two ago, that really meant a lot to me,

[00:30:19.384]

actually. Dollarama, I would never have owned 12, 15 years

[00:30:23.588]

ago. Bought Dollarama and kept it way longer than I typically

[00:30:27.725]

would have. I think if you look at the returns of Large Cap over the

[00:30:31.763]

last five years we've benefited, not from any change in the process

[00:30:35.767]

but my ability slowly to improve which was

[00:30:39.704]

a slight weak point for me.

[00:30:41.206]

It's the evolution of the fund, the evolution of you as a portfolio manager.

[00:30:44.442]

Yeah, well hopefully improvement.

[00:30:46.444]

That's great.

[00:30:48.646]

We need to talk about cash in the portfolio right now.

[00:30:51.082]

Similar to Liberation Day you had that liquidity, you were able to

[00:30:55.053]

act, you were able to deploy, maybe just a quick update on the positioning from

[00:30:59.858]

the liquidity perspective. On arbitrage you've always been very active.

[00:31:04.495]

I think I heard we're around 25%, is that correct?

[00:31:07.398]

Overall, we're a little bit over 25% in overall liquidity.

[00:31:11.302]

Very little cash so you won't see cash in the holdings

[00:31:15.974]

but a few percentage points in bonds.

[00:31:17.976]

It's mostly arbitrage which I've been involved in

[00:31:22.113]

for 15 years. I've touched over 500 deals

[00:31:26.217]

so I think I'm one of the foremost experts on merger arbitrage

[00:31:30.455]

in Canada. It is slightly lower return, slightly lower risk

[00:31:34.392]

in a typical equity but when you're waiting for opportunities to come your way

[00:31:37.629]

I think it's a great place to be.

[00:31:40.465]

Right now the returns are pretty interesting because interest rates are a

[00:31:42.767]

little higher than they were 10 years ago.

[00:31:45.637]

The spreads are ... you can make, let's say, annualized 7, 8%.

[00:31:48.640]

For those who don't really know what we're talking about here,

[00:31:52.610]

a very simple example in Canada, Telus is buying Telus

[00:31:57.048]

International for a fixed cash price.

[00:32:00.551]

When you have that announced you can say, okay,

[00:32:04.789]

there's very little left because the stock goes almost up to the price it's

[00:32:08.726]

going to close at. There's still a few risks.

[00:32:11.362]

There's a still regulatory risk, there's still financing risk, there's still

[00:32:15.066]

maybe shareholders won't vote for it and then maybe Telus

[00:32:19.137]

won't want to pay more if people vote against it.

[00:32:21.105]

There's always little risks like that but they're pretty small.

[00:32:24.709]

That spread will be pretty tight, usually.

[00:32:26.911]

On an annualized basis you can make anywhere between the T-bill rate

[00:32:30.882]

return and the stock market return, so it's going to be 6 to 8-ish.

[00:32:36.120]

It's a lot of work, and I would love not to have to do this work and for

[00:32:40.058]

the market to be 40% lower than where it is with a lot of great ideas for

[00:32:43.995]

my process but it's not where we are right now.

[00:32:46.064]

It's where we were for about a week and a half in April.

[00:32:49.033]

I went down to zero merger arbs in April but we rapidly cranked

[00:32:53.204]

that up. The fact that we're at 25%

[00:32:57.342]

means I get a lot of resources both internally and externally from

[00:33:01.946]

the street about what deals are happening and what blocks are available

[00:33:06.851]

so we're fairly active there right now, hopefully, not for too long.

[00:33:09.654]

We're back to being patient should something happen, and available and ready.

[00:33:14.525]

We only have a couple minutes left. Let's talk really briefly about Global

[00:33:18.229]

Value Long/Short.

[00:33:19.897]

Exciting moment for Global Value Long/Short as it has been a new building block

[00:33:23.735]

in the multi-alt equity fund and ETF that launched on Tuesday.

[00:33:27.772]

If you're looking for a way to capture all of the alternative strategies in

[00:33:31.909]

a one-stop shop this is a way to do it, a way to access Dan

[00:33:35.913]

and that strategy. Back in April you were covering the short book.

[00:33:40.184]

What's the update on where you're at on the short positions today?

[00:33:43.688]

I've been trying to do the right thing.

[00:33:45.890]

In April covered, like you said, a lot of the short book, rebuilding these

[00:33:49.794]

positions. I'd say we're back to a point where it's very, very

[00:33:53.931]

speculative at the extreme end of the market.

[00:33:56.267]

We're seeing really big spikes in meme stocks and

[00:34:01.839]

a few subsectors, quantum computing.

[00:34:04.742]

They're different than 2021. I think the market cap in aggregate of

[00:34:08.846]

these egregiously overpriced securities are bigger.

[00:34:12.517]

I have a watch list of, basically, maybe 150 names

[00:34:16.721]

that I think are really good for shorting right now.

[00:34:19.023]

I'm concentrating in the 20 to 40 that are most interesting.

[00:34:23.094]

On the flip side I think, like I said, we have great opportunities on the long

[00:34:26.564]

side, on the value side globally.

[00:34:28.933]

That fund is coiled to have decent performance at some

[00:34:33.004]

point where if the market becomes a bit more aware of these

[00:34:37.075]

extreme overpricings in the extreme end of the market.

[00:34:40.344]

It's not to say that the overall market is massively speculative

[00:34:44.315]

but I'd say ... I lived a little bit through 2000,

[00:34:48.453]

2021 for sure, running that Long/Short Fund and I do think this is kind

[00:34:52.523]

of the biggest opportunity to

[00:34:56.494]

short. I'm very excited to be managing that fund.

[00:35:04.402]

I do think it has a great home in Global Equity+ in this new alternative fund.

[00:35:05.703]

It turned five yesterday. How exciting.

[00:35:08.239]

Happy fifth birthday. It's perfect.

[00:35:09.674]

I look 10 years older, though.

[00:35:13.111]

That's the trade-off.

[00:35:15.513]

We have some fun questions to get to before we close out for the day.

[00:35:20.084]

Just going back to our rapid fire, some of you may not have the answer to this

[00:35:23.454]

but your first job.

[00:35:25.056]

Oh, on the farm.

[00:35:28.226]

I was five years old, I had jobs.

[00:35:30.361]

Coming back from school I knew what I had to do.

[00:35:32.330]

Dairy Farm. Favourite movie.

[00:35:36.868]

Favourite movie, that's changed over time.

[00:35:38.769]

I'd say recently ... I'm a bit of a finance geek, it's Margin Call

[00:35:42.039]

There you go. An oldie but a goodie, love it.

[00:35:44.475]

Go to coffee order.

[00:35:46.277]

I drink a lot of espressos. If I wanna go fancy, macchiato.

[00:35:50.681]

And a fun fact people don't know about you.

[00:35:56.821]

I do hot yoga every two, three weeks.

[00:35:58.523]

Do you?

[00:36:01.692]

I go to the gym a lot but I've started to try to just relax somehow because

[00:36:05.363]

these markets that are just wearing on me.

[00:36:08.432]

You need to find it wherever you can.

[00:36:11.135]

That's right.

[00:36:11.702]

Really quickly, I know we're at time, it

[00:36:16.174]

has been a wild 2025.

[00:36:18.376]

We're headed into 2026, what are you excited about?

[00:36:22.914]

Where are you thinking it's going to lead you?

[00:36:26.717]

Like I said, we're going to be patient, we're going to let the market come to

[00:36:29.554]

us. Right now opportunities are closer in what

[00:36:33.524]

I call the bottom of the K-shaped economy.

[00:36:36.961]

The bottom 50% of people are struggling more, the top 10 is doing fantastic.

[00:36:40.398]

They're travelling the world, they are going to restaurants, booking hotels.

[00:36:44.902]

The bottom 50 are struggling a bit more and younger people are struggling more.

[00:36:49.307]

All of that to say that the movement of goods, for example, has been really,

[00:36:53.344]

really under a lot of pressure.

[00:36:56.180]

I'm very excited about a CN Rail that we have in the holdings, that moves

[00:37:00.184]

goods, been depressed. It's been really, really tough.

[00:37:02.520]

I think Hugo owns a lot of them.

[00:37:04.455]

I understand why. It's been really, really tough, the margins have been under

[00:37:07.425]

pressure. Sometimes the multiples don't look as low as they could.

[00:37:10.428]

It's been such a tough two, three years, and it just

[00:37:14.498]

keeps going.

[00:37:16.434]

A lot these stocks are getting closer and closer to buy prices for me so

[00:37:20.538]

that could be an exciting area for the next six to nine months.

[00:37:24.342]

Love it. Dan, thank you for being here, always a pleasure.

[00:37:26.811]

Thank you so much.

[00:37:28.546]

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The views and opinions expressed on this podcast are those of the participants,

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and do not necessarily reflect those of Fidelity Investments Canada ULC or

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Thanks again. We'll see you next time.