Why this portfolio manager's defensive strategy includes adding positions to a chipmaker and drug giant - The Globe and Mail

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Maili Wong of Wellington-Altus Private Wealth.The Globe and Mail

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Money manager Maili Wong is encouraging investors not to panic sell amid the latest bout of market volatility and instead look for opportunities to buy stocks at cheaper valuations in the days or weeks to come.

“Let the dust settle a bit, and then be willing to buy good quality assets on sale,” says Ms. Wong, senior wealth advisor and senior portfolio manager with The Wong Group at Wellington-Altus Private Wealth Inc. in Vancouver, who oversees about $600-million in assets.

Ms. Wong is assessing what investments to add to her portfolios amid the recent market drop, which has been driven by a string of bank failures in the U.S.

“For the past several months, our portfolios have been underweight financials, and we remain diversified and positioned defensively,” Ms. Wong says. “We believe that value-oriented, dividend-paying and growth-at-a-reasonable price equities and short-to-medium term government and investment-grade bonds are among the attractive asset classes to own in the current environment.”

Being defensive helped her portfolios outperform the broader markets last year. Her sustainable income model portfolio, which includes about 70 per cent equities, 25 per cent fixed income and cash and 5 per cent alternative assets, such as private structured notes and private real estate, ended the year flat.

“We took profits in 2021 on a lot of our technology exposure and moved into more defensive areas like health care and dividend-paying stocks,” Ms. Wong says. “We were also short-duration in our fixed-income portfolios, so when interest rates went up, we were able to take advantage of those higher rates.”

The Globe and Mail spoke with Ms. Wong recently about her investment style and what she’s been buying and selling.

Describe your investment style:

We use a scientific, evidence-based approach to investing. Our approach recognizes and embraces that volatility is normal. We also take a diversified approach, tilting portfolios toward certain characteristics like value, profitability, business momentum and size. We also use risk management, thinking not only about the upside but how to protect clients’ returns on the downside. I call it a ‘smart risk approach.’

What’s your take on the current market environment?

The U.S. Federal Reserve has been raising interest rates aggressively, and some economists suggested rates will rise until something breaks as a result of pressures on the financial system. Recent issues in the U.S. banking sector are an example of those pressure points and things breaking. It’s why we’re seeing bond markets shift so quickly. We’ll get more clarity in the coming weeks on which way interest rates are heading, starting with the Fed’s latest announcement coming next week.

What stocks have you been buying lately?

One stock we bought last July and have been adding to is Analog Devices Inc. ADI-Q, one of the world’s largest analog chipmakers. It has a strong position in making more advanced, higher-price semiconductors in areas like automobiles, 5G wireless equipment and industrial applications like medical devices or factory automation. Its chips convert real-world signals like sound, temperature or pressure into digital signals that can be processed. In times of slower economic growth, this business should be quite resilient.

We’ve also been adding to our position in the pharmaceutical company Merck & Co. Inc. MRK-N, which we also bought last July. Merck has a broad lineup of high-margin drugs including in the cancer space, and has a strong intellectual base to shield it from competition. Its new drug pipeline should help support capital returns over time. The company also pays a nice dividend.

What have you been selling?

One stock we sold recently is Thermo Fisher Scientific Inc. TMO-N, which makes laboratory equipment like needles and COVID-19 testing kits. The stock did very well for our clients after seeing record demand for its products during the early stages of the pandemic. We bought the stock in 2018 based on its strong fundamentals and then sold it for a profit last May in anticipation of headwinds. The company is integrating some new acquisitions, which can be capital-intensive and weigh on shares.

We also sold Walmart Inc. WMT-N last April, which we’ve held since 2017. It has done well for us, so it was tough to sell, but we were concerned about the impact of higher interest rates on consumer spending and the company’s margins.

Name one stock you wish you bought or didn’t sell.

The one that got away from us was chip maker Nvidia Corp. NVDA-Q. It specializes in designing and manufacturing graphics chips, including artificial intelligence chips that drive supercomputing for autonomous vehicles, robots, drones and gaming. It’s one we owned years ago but not in recent years. It’s one we’re keeping our eye on.

What’s your advice for new investors?

Learn to embrace volatility. Try to see it as an opportunity to buy high-quality assets on sale. If you go in with that mindset, you won’t be fearful or stressed when it happens. Markets reward long-term investors; let the markets work for you.

This interview has been edited and condensed.

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