FidelityConnects: True North Trends: Opportunities in Canadian equities

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Hello, and welcome to Fidelity Connects.

 

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I'm Pamela Ritchie. After a strong year for Canadian markets investors are

 

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taking a closer look at what's driving returns for this year.

 

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Gold and energy have moved back into focus and Canada's industrial

 

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base is beginning to take shape again.

 

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Our next guest believes this is exactly the kind of environment where

 

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selectivity matters more than broad exposure.

 

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What does he say that active management matters,

 

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how does it matter more now and where is he seeking opportunity.

 

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Joining us here today to discuss all of this further is Fidelity

 

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True North Fund portfolio manager, Max Lemieux.

 

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Great to see you, Max. Thank you for joining us from Montreal.

 

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How are you today?

 

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Good. Good morning, everyone.

 

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Great to have you joining us here.

 

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Let's begin with what a year it was, certainly, last year.

 

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One of the big questions is sort of is it repeatable in the Canadian markets?

 

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You're sitting in the midst of it. You've been doing this for years.

 

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What did last year mean? Has it wrapped and where are we going?

 

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I call it a vintage type of year.

 

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Over the past 30 years, well, soon coming out to 30,

 

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it's been impossible to predict such a

 

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movement. We met last year talking about the first

 

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grenade from Washington in terms of potential tariffs and

 

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so on. I would have never been able to predict such a

 

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strong recovery for the Canadian market, finishing up more than 30%.

 

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Obviously, when there's so much sentiment and

 

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speculation, especially in gold and metals, it's

 

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been a heck of a year.

 

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I think it's hard to repeat this but there are trends that we

 

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think, again, personal view, trends that might continue

 

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to remain in place for the next year or two.

 

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We'll see. As you know, True North, we have a long term view when we invest.

 

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It's usually over the next three years plus.

 

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It's not day trading.

 

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Last year was very special because

 

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everything went up at the same time.

 

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Reminded me a little bit 2010, 2011 where the very speculative

 

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companies were just going after

 

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returns of 20, 30%, and small-cap also.

 

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We've seen a bit of a broadening marketplace coming towards the end of the year

 

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last year. I would say gold and copper and

 

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all these metals, including energy, as you mentioned, was also important, not

 

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necessarily because the price of oil has been as positive as

 

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gold.

 

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Remember that gold last year was up 60% and Canadian gold equities were

 

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up 120%, so it's a double.

 

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Energy, remember, there's been huge improvements out

 

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of Calgary over the past 10,15 years, consolidation,

 

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better management, the cost of producing gas

 

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and oil has improved quite a bit.

 

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Lower discounts on oil and also the new pipeline,

 

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Trans Mountain, allows us to export internationally

 

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so less dependent on the US Gulf Coast.

 

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To top it off, as you know, LNG Canada has just started last

 

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year, it's going to start to export more.

 

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There'll be two more terminals over the next three, four years and therefore

 

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they'll probably consume up to 10% of natural gas production in

 

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Canada. Short term, not necessarily a lot of excitement for the commodity,

 

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the natural gas per se, but I think that given the

 

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ongoing geopolitics we need to continue

 

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to take advantage of those resources that we have.

 

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We have not even talked about nuclear. Nuclear was topic du jour also last

 

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year. I'd like to remind the audience that

 

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two of the three nuclear technologies in the world are controlled by

 

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Canadians, i.e. Brookfield and Cameco both own

 

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Westinghouse, which is an American technology.

 

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And have a huge contract with the US government.

 

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Yes, absolutely. Those are long term duration, right?

 

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We don't always have all the details short term.

 

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I mean, as you know, Washington keeps us on our toes every single day.

 

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We don't have always have full transparency but we know what's the direction

 

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of travel.

 

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That's important.

 

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The old SNC, which is AtkinsRéalis, that owns the CANDU technology

 

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which is more in Europe but they'll try to probably enter the US market as

 

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well. We'll see how that's going to pan out for these names, doesn't mean that

 

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we own it today or if we're buying or selling.

 

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I just want to mention that Canada on the resource front,

 

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there's a lot also being supported by ...

 

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as you know, since Carney's been elected ...

 

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supporting these five large major projects and one of them that was in the top

 

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five was foreign, which is a copper mine, which is about to

 

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start, I think, next year out of Saskatchewan, that's

 

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a name that as of the last filing was in True North.

 

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We were in that name at that time for a long time, actually for

 

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more than a year. There's more to come, and this

 

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narrative is not changing in the short term so it's hard

 

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to say what's coming up next year, over the next 12

 

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months, but if commodity prices just remain where they're at a

 

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lot of companies in Canada, if they're energy or rare earth

 

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or copper, if the commodity prices maintain, sustain themselves

 

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you have companies that generate good free cash flow and good returns to

 

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shareholders.

 

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You're right in the middle of it.

 

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You just used that example of the mine in Saskatchewan which has now been

 

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picked up for bigger and greater and better things and you've been there

 

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for a long, long time. You've maneuvering this market and knowing the

 

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intricacies of it for such a long time

 

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so it sounds like you're saying the moment is continuing.

 

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This is something that's going to run for some time.

 

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That's what we feel. Again, I've given up on my crystal balls,

 

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the past three years have been quite something.

 

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The definition of a cycle, I think, has changed quite a bit.

 

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I'm not going back to university but I think what we've seen is

 

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unheard of in modern history.

 

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Think about it, the last recession was 2009,

 

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COVID was a two-week recession, it's very interesting.

 

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Again, rare earth, there's a company based

 

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in Montreal, they've been involved in this whole chain.

 

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Again, as of the last filing we had been shareholders for many, many years in

 

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that company. Sometimes to wait a bit more when you see that

 

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incrementally these companies are improving on what they do

 

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and expanding, the payoff long term can be very attractive.

 

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That's what we're trying to do. What people don't see necessarily, the

 

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investors, is that we try to manage risk in absolute terms,

 

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so we're not a benchmark hugger.

 

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Sometimes we're ahead of the crowd but when it becomes really

 

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exciting we're not going necessarily be overweighted, especially in

 

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Canada where the

 

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index is not as diversified.

 

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It's a different type of marketplace in Canada.

 

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If we want to protect shareholders' money, especially during downturns because

 

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there will be shakeups at times, we've seen it over

 

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the past few days with AI's impact on software.

 

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It's nothing new but there was another breach.

 

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You don't know what's going to come.

 

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We don't know if there'll be another statement from Washington that will just

 

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mix up all the cards out there.

 

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But you know the background is, again, there's a direction

 

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of travel. I think Mr. Carney's trips in China and

 

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Europe, I think he's maneuvering, not to escape

 

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a potential renewable of the

 

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USMCA but I think we always need to have a B plan.

 

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It's like when I do my homework with my analysts

 

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we try to measure what is the absolute downside scenario and

 

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what is upside, that's what we do all the time on all the

 

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stocks. I think Mr. Carney is doing this, he needs to prepare Plan B and

 

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probably a Plan C because we don't know what's going to happen when July comes.

 

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Will there be a full renewal of the free trade or is

 

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that going to be just like no renewal so therefore

 

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it keeps going on a yearly basis for 10 years or, as you know,

 

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the default option is that any of the three

 

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country from July and on can

 

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exit on a six-month notice, and that would be the

 

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absolute downside scenario for the industrial companies.

 

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What I want the audience to remember, the industrial

 

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economy in Canada since 1987, the first free trade agreement

 

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between Reagan and Mulroney, sorry,

 

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1988, I believe, part of the industrial

 

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sector in Canada was about 18% of the market.

 

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Recently, as of last year I think, we touched a low of 8% or 8.5%.

 

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Because natural resources were available or

 

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part of that free trade agreement, unlike most of the free trade agreements in

 

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the world that have taken place over the past 30 years, well,

 

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we tend to specialize in what we're best at.

 

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When your largest client is just down south it's easy to ship,

 

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train, truck, whatever.

 

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That's what happened. Now because of the geopolitics we need to spend more

 

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on defence. Usually, spending more on defence helps a

 

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country or an economy to rebuild its own industrial

 

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base. I think that's we're going to see over the next few years.

 

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We've seen a lot of Canadian names that have had quite a move last

 

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year just based on that prediction of more

 

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spending.

 

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For sure. It's just fascinating to watch this roll out and with your expertise

 

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behind it being able to shepherd people through

 

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where there's an opportunity now and when it's perhaps a bit early to

 

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take a look at things. You'll know that better than almost anyone.

 

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When you take a Look at the geopolitics, I don't want to bring too many of them

 

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in here but, for instance, there's a discussion of

 

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whether oil is going to feel the global price.

 

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This is a bit of a shock.

 

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There are things going on in the Middle East. We don't know if it'll be a

 

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nothing or if it's something that goes further.

 

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Again, just tell us a little bit about your energy positioning within the fund

 

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at this point.

 

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Without naming specific names we've always been

 

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quite involved with royalties type of companies where

 

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the different moves in commodities are not necessarily going to have the same

 

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impact as a producer.

 

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You can think of the refiners, they can

 

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have a great run, especially if oil stays at a lower price because their

 

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margins improve by default.

 

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We've got some secular stories, including also some of the pipelines, some

 

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of the pipeline companies, especially for natural gas.

 

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We've always believed that natural gas is a bridge towards

 

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a greener world. I've not changed my personal view on this.

 

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Same thing as rare earth or some metals will be needed for this

 

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ongoing transition, but there will be hiccups.

 

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In terms of oil and gas, as I've mentioned earlier, a lot of these companies

 

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at $60, $65 oil are more

 

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profitable than they used to be.

 

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They're just better companies than they're used to.

 

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Now, of course, given the geopolitics, if you tell me that oil goes

 

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to 50 bucks some of these names will go down,

 

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there's no doubt about it. There's a currency also that we need to factor in.

 

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I cannot promise, and I don't know if there'll be another oil pipeline, it's

 

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not crystal clear. I think based on my readings and our discussions with

 

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CEOs of different companies it looks more like we might have

 

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a great opportunity to continue to expand on the current infrastructure that

 

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has already been built as opposed to building a brand new pipeline.

 

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That alone could increase quite a bit the overall exports [crosstalk].

 

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It's all about the capacity and the export piece

 

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so if it gets there...

 

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You want to diversify away from the US, right, 80% of what

 

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we ship used to be in the US.

 

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You want to play your cards well because now we don't know what's going to

 

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happen in Venezuela but if Venezuela were to go

 

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back to what they used to produce, which was like $3 million, I think, a year,

 

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they're at 800,000 barrels a day, I think, used to being closer to

 

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2, in the heydays I think it was 3 or slightly above,

 

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it would take years.

 

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It takes a long time. Remember when the US invaded Iraq

 

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it took them more than a decade to bring back the

 

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production that Iraq had back in their peak.

 

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It takes lot of time.

 

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Again, I want people to remember we have a

 

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diversified economy.

 

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As I said, uranium, nuclear, copper,

 

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the gold companies have a lot of byproducts as well.

 

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It's super interesting to see where Canada sits right now.

 

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I was speaking to an old friend in Boston a

 

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few weeks ago and he was mesmerized about why

 

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are investors more enthused about the Canadian marketplace

 

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given all the resources that we have, and if the world continues

 

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to go through a duplication of all the supply chains

 

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as a result of the geopolitics Canada sits very

 

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well. Remember, we talked about this when the Russians invaded Ukraine.

 

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

 

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

 

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Absolutely. That was the beginning of one piece of the gold trade,

 

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certainly. There's more to it perhaps now because it's a

 

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gathering storm to an extent.

 

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We saw gold fall out of bed last week, for sure,

 

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maybe linked to the new Fed nominee, head of the

 

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Fed nominee. I don't know what you think about that but where does gold

 

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play a role going forward.

 

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Maybe it was a buying opportunity for some people.

 

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It seems to be okay today.

 

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Maybe. In terms of how I perceive gold,

 

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I always had this soft rule since I've been a fund manager,

 

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gold is very much based on sentiment.

 

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It's not a productive asset.

 

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As a result, all the funds I've managed previously usually I've got this 10%

 

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threshold as percentage of the total assets of the fund.

 

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We were in gold last year, two years, five years

 

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ago. Now as you get more advanced

 

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in that cycle people go from the large cap to the

 

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smaller and mid-cap companies that become more speculative.

 

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They want a bigger bang for their bucks, right?

 

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It gets a bit harder for True North, which is a 7

 

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billion plus fund, to get involved with but we're always on the lookout

 

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for interesting opportunities that will have potentially a long duration,

 

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no matter what happens with the gold price.

 

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The reality is we've been on the wait over the past couple months

 

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just because now it's way above 10% of the TSX,

 

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as I've mentioned to you, and therefore more than 10% of the fund,

 

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a little bit more. So I'm just a little careful on short

 

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term but the reality is that nothing's changed.

 

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Central banks have increased their reserves but they're not buying as

 

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much as two years ago.

 

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Last year, we just saw the numbers, central banks bought a little less last

 

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year versus 2024 but there's still a trend.

 

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Now over the past six months it's been all retail money and institutional

 

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investors coming in.

 

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Now, the dynamic, look at Venezuela, the more

 

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land grab that we see or the more changes that were

 

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unexpected in the previous world order, this

 

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I think will keep people interested in gold.

 

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Also, I'd like to mention something. As you know, I've never been a big bull or

 

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a strong believer in cryptos but over the past couple

 

17:37.990 --> 17:42.094

of weeks, months, there's been articles about quantum

 

17:42.094 --> 17:46.932

computing being able to break in the codes for cryptos.

 

17:46.932 --> 17:51.003

It's very interesting that over the past month or so

 

17:51.003 --> 17:54.873

we've seen really cryptos being under pressure.

 

17:54.873 --> 17:58.911

Obviously, gold has decoupled like last year but I think that people realize

 

17:58.911 --> 18:01.747

maybe that to own something that is really tangible ...

 

18:01.747 --> 18:07.086

we've seen this queue of people going to buy silver and gold

 

18:07.086 --> 18:11.323

in the US, in the UK. I don't know how many coins now are sold out at Costco.

 

18:11.323 --> 18:15.327

It's a bit crazy. When you look at the rate of change, when gold reached

 

18:15.327 --> 18:19.498

5,000 it was, I think, something psychological which coincided

 

18:19.498 --> 18:24.436

also with the nomination of the new Fed chair who is, by the way,

 

18:24.436 --> 18:27.005

an investor. His whole career has been ...

 

18:27.005 --> 18:30.042

he was a banker, investment banker, then he went to work with Stanley

 

18:30.042 --> 18:34.113

Druckenmiller who is one of the most famous stock investors in

 

18:34.146 --> 18:38.283

the West. A bit less well known because he just runs his own

 

18:38.283 --> 18:43.856

family office since he left George Soros many years ago.

 

18:43.856 --> 18:48.260

Scott Bessent worked at Soros with Stanley Druckenmiller and

 

18:48.260 --> 18:52.331

he's in charge of the Treasury, and you've got now Mr. Warsh who

 

18:52.331 --> 18:54.066

will be heading the Fed.

 

18:54.066 --> 18:58.103

These two individuals understand the stock market inside out.

 

18:58.103 --> 19:02.141

That's very interesting that now you'll have two voices

 

19:02.141 --> 19:04.576

reporting to Mr. Trump in some ways.

 

19:04.576 --> 19:08.480

We'd like to believe that the Fed will remain quite independent.

 

19:08.480 --> 19:12.651

Mr. Warsh understands markets, we'll see if he's going to be a dove

 

19:12.651 --> 19:16.121

like some people pretend, or if he is going to be a bit hawkish.

 

19:16.121 --> 19:20.058

It's not crystal clear to me what will be the approach.

 

19:20.058 --> 19:23.996

I don't think, again, personal view, I would not be surprised if in the short

 

19:23.996 --> 19:28.400

term rates could go down a little bit more. At the same time the economy in the

 

19:28.400 --> 19:32.437

US, despite the fact that it's a K economy, the bottom 20

 

19:32.437 --> 19:36.608

percentile is still hurting, it's hard to get by, inflation is

 

19:36.608 --> 19:41.513

not disappearing. But the economy,

 

19:41.513 --> 19:45.450

CapEx, infrastructure, you know, these CapEx from the large

 

19:45.450 --> 19:49.421

four players for the data centres geared towards AI keeps

 

19:49.421 --> 19:53.125

going and represents 75% of the overall CapEx in the US.

 

19:53.125 --> 19:56.261

There's still on shoring.

 

19:56.261 --> 20:00.399

It's earning season as we speak so we see the backlog of major industrial

 

20:00.399 --> 20:04.536

companies starting to increase because it's been three years of complete

 

20:04.536 --> 20:08.807

stagnation. Those PMIs are starting to move

 

20:08.807 --> 20:13.178

but the stocks have already had quite a move since October already.

 

20:13.178 --> 20:17.282

You mentioned crypto. I want to ask you a little bit about AI and the

 

20:17.282 --> 20:20.085

discussions because all of the components that you've been discussing in many

 

20:20.085 --> 20:24.156

cases will be components of the AI build out, the commodity side

 

20:24.156 --> 20:27.926

of it, the energy side of it, certainly.

 

20:27.926 --> 20:31.163

Something that we've seen in markets has certainly been a reaction from

 

20:31.163 --> 20:35.300

software being displaced, essentially, by what

 

20:35.300 --> 20:37.402

AI can do for companies.

 

20:37.436 --> 20:39.538

I just want to kind of get your thoughts on that.

 

20:39.538 --> 20:43.575

For a long time software has been a very interesting place to invest but lots

 

20:43.575 --> 20:47.179

of investors are questioning that right now. What are your thoughts?

 

20:47.179 --> 20:51.350

It's a great question, very hard to have a

 

20:51.350 --> 20:55.387

clear cut answer or to have an answer on a timely manner.

 

20:55.387 --> 20:59.858

Again, I think there's a roadmap or a direction of travel but

 

20:59.858 --> 21:03.895

in terms of sequence, hard to tell you the when and

 

21:03.895 --> 21:07.899

the what. Here, I'd like to share a personal discussion

 

21:07.899 --> 21:12.137

I had with an acquaintance of mine who's been

 

21:12.137 --> 21:17.042

involved in enterprise software his whole life, knows AI

 

21:17.042 --> 21:21.046

intimately. He started a new company about a year

 

21:21.046 --> 21:24.383

ago which is enterprise software but based on AI.

 

21:24.383 --> 21:28.453

Basically, this gentleman told me recently he could bring up

 

21:28.453 --> 21:32.491

a product that he's been showcasing and using,

 

21:32.491 --> 21:36.595

there's a core client using his new solution

 

21:36.595 --> 21:40.565

that was all AI built and therefore he told me, I can do a

 

21:40.565 --> 21:44.336

lot more faster thanks to AI.

 

21:44.336 --> 21:47.539

He could do this with, I think, half the number of engineers.

 

21:47.539 --> 21:51.610

I forgot in terms of amount of time

 

21:51.610 --> 21:53.945

but it was much faster.

 

21:53.945 --> 21:57.649

Here's the hook or the pitfall.

 

21:57.649 --> 22:02.020

Where he was misled, his client is super happy

 

22:02.020 --> 22:06.024

but he cuts back on software engineering but where he

 

22:06.024 --> 22:10.729

had to hire a lot more people was on the design part.

 

22:10.729 --> 22:14.700

It's easy to bring up a new solution, what's a generic solution,

 

22:14.700 --> 22:19.037

and then you need to adapt and tailor it to the need of your customer

 

22:19.037 --> 22:21.540

who might be in a totally different industry, different sector.

 

22:21.540 --> 22:25.410

You need to do that work.

 

22:25.410 --> 22:28.513

That's more labour intensive than expected.

 

22:28.513 --> 22:33.452

It's just to show here that, listen,

 

22:33.452 --> 22:37.522

it's been a carnage year-to-date, and started last year for this

 

22:37.556 --> 22:41.526

software sector mostly, well, not only enterprise

 

22:41.526 --> 22:45.464

software but all kind of software companies including info service type

 

22:45.464 --> 22:49.768

of software, we've seen Thomson Reuters and RELEX in

 

22:49.768 --> 22:53.805

Europe, we've seen some of the stock exchange that have a business model that

 

22:53.805 --> 22:57.843

is more based on info service as opposed to just

 

22:57.843 --> 23:01.813

commissions and trading, it has a lot of ramification.

 

23:01.813 --> 23:05.917

The example I just shared with you is I think that this

 

23:05.917 --> 23:09.855

is happening a little bit too fast because we've got

 

23:09.855 --> 23:13.925

the proof here that there's another aspect of a

 

23:13.925 --> 23:17.996

software solution that is based on tailoring it and

 

23:17.996 --> 23:21.967

making this tangible to the users, and that has

 

23:21.967 --> 23:24.035

nothing to do with AI per se.

 

23:24.035 --> 23:28.206

No, that's the layers and the nuance and the idiosyncratic

 

23:28.206 --> 23:31.943

way that you would take a look at companies and the theme and obviously the

 

23:31.943 --> 23:36.348

sort of shock to the market that is being endured by software right

 

23:36.348 --> 23:40.452

now. That kind of leads me to your ability to take a look at companies

 

23:40.452 --> 23:44.623

that would maybe be private at this point, probably tech companies that

 

23:44.623 --> 23:46.691

are private. You do do that.

 

23:46.691 --> 23:49.094

I know that you have a wide knowledge.

 

23:49.094 --> 23:53.832

You actually invest in the companies as well.

 

23:53.832 --> 23:57.803

We still do. Not in the case that I just mentioned to you, that's way too

 

23:57.803 --> 24:01.206

early.

 

24:01.206 --> 24:04.643

If we invest in some private companies we like them to already have some kind

 

24:04.643 --> 24:08.046

of revenue generation.

 

24:08.046 --> 24:12.217

We do own three to four companies, it's probably about 1% of the

 

24:12.217 --> 24:14.820

portfolio so it's nothing very risky.

 

24:14.820 --> 24:18.857

We try to mitigate the absolute risk again but we're super enthused

 

24:18.857 --> 24:22.894

about ... two of these companies

 

24:22.894 --> 24:25.697

actually right now are very interesting.

 

24:25.697 --> 24:27.466

They've seen their backlog growing.

 

24:27.466 --> 24:29.668

One of them is related to automation.

 

24:29.668 --> 24:34.139

I've talked about all these backlogs for these large industrial companies where

 

24:34.139 --> 24:36.908

it's increasing recently.

 

24:36.908 --> 24:40.946

Some of these company's, they're unicorn, it's just a question of

 

24:40.946 --> 24:45.183

time. We saw actually just two days ago out

 

24:45.183 --> 24:49.921

of Quebec City there's a company that was purchased for

 

24:49.921 --> 24:54.125

$2 billion Canadian by ASSAB, a large

 

24:54.125 --> 24:56.495

US industrial company.

 

24:56.495 --> 25:00.799

Too bad that we lost that company but we

 

25:00.799 --> 25:05.403

have that. I want people to remember long term diversification

 

25:05.403 --> 25:09.508

will always pay off. It's one thing to chase the metals and the

 

25:09.508 --> 25:14.446

gold and the oil or the energy or infrastructure, we

 

25:14.446 --> 25:18.517

have to remind ourselves that technology despite AI, there'll

 

25:18.517 --> 25:22.220

be new winners out there and we have to be on the lookout for these.

 

25:22.220 --> 25:26.324

That's why we do that extra homework to keep an

 

25:26.324 --> 25:29.060

eye on some of these private companies.

 

25:29.060 --> 25:33.164

It's fascinating. And I think Charles Danis had a conversation with

 

25:33.164 --> 25:35.300

you in French just before this.

 

25:35.300 --> 25:39.804

This was actually a question that he was asking of you offline, we

 

25:39.804 --> 25:44.142

were talking about it, the idea that probably a lot of investors last

 

25:44.142 --> 25:48.246

year would have done very well just owning the TSX.

 

25:48.246 --> 25:51.016

That worked pretty well for a lot of investors.

 

25:51.016 --> 25:53.084

I guess the difference between ...

 

25:53.084 --> 25:57.589

there's a carry on of what went on last year and some of the themes

 

25:57.589 --> 26:01.726

but what's a bit different and nuanced and, frankly, requires a more

 

26:01.726 --> 26:04.596

active approach because last year you really could have owned the index,

 

26:04.596 --> 26:07.832

actually.

 

26:07.832 --> 26:11.870

Last year it's bittersweet, right?

 

26:11.870 --> 26:15.907

For any active fund manager like ourselves, when

 

26:15.907 --> 26:20.078

you're up in absolute by 24, 25% but your index

 

26:20.078 --> 26:25.116

is up 30, 32%, whatever it finished at,

 

26:25.116 --> 26:28.286

you're super happy in absolute terms.

 

26:28.286 --> 26:32.290

You might think that Christmas there'll be nice gifts under a tree

 

26:32.290 --> 26:36.494

but you still have this pressure or this sense of you're

 

26:36.494 --> 26:40.432

not completely fulfilled or satisfied because you

 

26:40.432 --> 26:43.802

could not beat the benchmark. The perfect year is when you're up in absolute in

 

26:43.835 --> 26:48.273

a nice way and when you beat the benchmark.

 

26:48.273 --> 26:51.009

That's not what happened last year, unfortunately. It was extremely hard to

 

26:51.009 --> 26:54.679

beat the benchmark for all the reasons I've mentioned, the Junior Gold and the

 

26:54.679 --> 26:56.615

metals just started to run.

 

26:56.615 --> 26:59.417

The Canadian banks also did better than expected.

 

26:59.417 --> 27:01.286

We've talked about this in the past, Pamela.

 

27:01.286 --> 27:05.690

I think since the financial crisis of

 

27:05.690 --> 27:09.894

'08, 09 the US large money centres, banks, and the Canadian banks,

 

27:09.894 --> 27:13.632

have really cut back on the subprime type of loans.

 

27:13.632 --> 27:17.902

In Canada it changes the nature of the risk profile for these

 

27:17.936 --> 27:22.107

Canadian banks because back in the days, previous cycles, again, that's why we

 

27:22.107 --> 27:26.177

always need to look at history but we need to adjust our models

 

27:26.177 --> 27:28.513

for the future because cycles are very different.

 

27:28.513 --> 27:31.916

No recession since '09.

 

27:31.916 --> 27:36.187

The Canadian banks cut back on subprime and now when you've got unemployment

 

27:36.187 --> 27:40.525

at 7%-ish, back in the day's that's when you would

 

27:40.525 --> 27:43.662

start to see defaults on mortgages and different loans.

 

27:43.662 --> 27:47.732

We've barely seen this so far.

 

27:47.732 --> 27:50.769

That's been a bit of a surprise and that's where we probably lacked a little

 

27:50.769 --> 27:53.104

bit last year.

 

27:53.104 --> 27:55.607

In absolute terms it was an amazing year.

 

27:55.607 --> 27:59.611

Again, we were positioned for some of these large moves but we

 

27:59.611 --> 28:03.615

choose to manage risk in absolute turns and that's, in turns, when we have a

 

28:03.615 --> 28:07.585

negative year when the market is down usually we tend

 

28:07.585 --> 28:11.222

to fare a lot better. I think that's part of the approach.

 

28:11.256 --> 28:15.160

We like to have our unitholders to sleep well at night.

 

28:15.160 --> 28:18.697

It's a fund that continues to perform well over the long term with much less

 

28:18.697 --> 28:20.665

volatility.

 

28:20.665 --> 28:24.469

Some of the in-depth knowledge that you have of the companies and often

 

28:24.469 --> 28:28.840

watching with the research you have at your hands

 

28:28.840 --> 28:32.944

of what can be overdone, that's obviously where you go hunting and

 

28:32.944 --> 28:35.714

looking for opportunities.

 

28:35.714 --> 28:39.484

The software example today, and maybe even gold, I don't know, are

 

28:39.484 --> 28:43.655

opportunities where there's extreme moves obviously in the market but you have

 

28:43.655 --> 28:47.258

a much more nimble approach to things.

 

28:47.258 --> 28:50.895

Listen, the research is part of our DNA.

 

28:50.895 --> 28:54.566

Our analysts work day and night.

 

28:54.566 --> 28:57.936

We've seen it during COVID, we've seen it recently.

 

28:57.936 --> 29:02.841

There was this threat from Washington from Mr. Trump to decertify

 

29:02.841 --> 29:05.844

certain planes made in Canada.

 

29:05.844 --> 29:10.148

Well, let me tell you, as soon as we saw the news I called my analyst.

 

29:10.148 --> 29:12.117

I think that was at 7:00 p.m.

 

29:12.117 --> 29:14.385

He was at home. We had a conversation.

 

29:14.385 --> 29:18.656

I could hear his kids playing in the background.

 

29:18.656 --> 29:22.861

You reach out to the company, had a note published the same evening

 

29:22.861 --> 29:24.963

before we go to bed.

 

29:24.963 --> 29:29.400

I knew exactly what to expect the

 

29:29.400 --> 29:33.238

next day, that we own it or that we don't own it, there's always an

 

29:33.238 --> 29:37.442

opportunity. In the morning we had another follow-up

 

29:37.442 --> 29:41.446

together and I double checked with the traders what was the outlook in

 

29:41.446 --> 29:45.350

terms of demand for the stock or not.

 

29:45.350 --> 29:48.219

It played out quite nicely. It was a very interesting day.

 

29:48.219 --> 29:52.257

Legally speaking, we found out a day later that

 

29:52.257 --> 29:56.795

it would be really hard for a president to decertify a plane just

 

29:56.795 --> 30:01.733

without having the infrastructure involved.

 

30:01.733 --> 30:05.904

It's really captivating to see what's going on because there's always

 

30:05.904 --> 30:09.974

something coming out from left field that we've not seen.

 

30:09.974 --> 30:14.145

It's part of the turmoil that started a year ago and we're getting used to it.

 

30:14.145 --> 30:18.716

I think COVID prepared us in some ways to expect the unexpected.

 

30:18.716 --> 30:21.753

Your experience and the steady hand, there's something to that particularly

 

30:21.753 --> 30:25.890

when markets drop and your fund sort of sales

 

30:25.890 --> 30:29.260

through with a keel that's a bit more stable.

 

30:29.260 --> 30:33.264

Max Lemieux, we want to thank you for joining us today, sharing your time and

 

30:33.264 --> 30:35.900

telling investors what you're looking at for this year.

 

30:35.900 --> 30:37.702

Thank you.

 

30:37.702 --> 30:38.703

Thank you.

 

30:38.703 --> 30:42.640

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30:42.640 --> 30:46.778

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31:16.307 --> 31:20.144

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

 

31:20.144 --> 31:24.082

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

 

31:24.082 --> 31:28.086

its affiliates. This podcast is for informational purposes only, and should not

 

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31:30.622 --> 31:32.924

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31:32.924 --> 31:37.262

Or an endorsement, recommendation, or sponsorship of any entity or securities

 

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31:45.637 --> 31:49.474

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31:49.474 --> 31:51.776

Thanks again. We'll see you next time.