Forget the S&P 500. Inflation Could Make Canada the Better Bet

Kim Shannon (0:03)

When inflation is north of 2.5%, value outperforms growth. And when inflation is north of 4%, Canada is advantaged.

Amber Kanwar (0:12)

Inflation won't go back in the bottle. Kim Shannon has the place to hide. It's Canada.

Kim Shannon (0:18)

A few years ago, we were screaming from the rooftop saying, look at how cheap Canada is relative to the US.

Amber Kanwar (0:24)

Is Cenovus the new CNQ? You own CNQ?

Kim Shannon (0:29)

Not anymore.

Amber Kanwar (0:30)

Kim, the value investor, what do you say about these Canadian bank valuations? Something that is concerning investors is we're seeing a selloff in the bond market. Is there a scary number you have in your head? Okay, if bond yields are this, then I'm going to sell all my stocks. You have a funny story with Warren Buffett, don't you?

Kim Shannon (0:48)

What is it? We know that Warren, number one, likes blondes and number two, likes underdogs.

Amber Kanwar (1:02)

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The content provided in this podcast is for informational purposes only and does not constitute financial investment or professional advice. The views expressed by the host and the guest are their own and do not necessarily reflect the opinions of any organization or company. The host and guest may maintain positions in any securities discussed on the podcast. Always consult with the qualified financial advisor or professional before making any investment decisions. In this episode, we discuss CNQ, TD, and Fairfax, which are all stocks that I own.

Hey everyone, welcome to a brand new episode of In the Money with Amber Kanwar. We've got Kim Shannon returning to the podcast, the veteran money managers having a banner year. Her Pro Picks alone are up an average 66% from when she was on last year. She's brought us a whole new crop of value stocks, and value is a particularly interesting spot right now. It's having a real moment. One that Kim told us a year ago was going to be coming. Now she says, if you want to hide from inflation, Canada is one of the number one destinations to do that. She's got a lot of ideas of where investors can go, so let's get into it.

Kim Shannon, thank you so much for joining us on the podcast again.

Kim Shannon (2:59)

Delighted to be back.

Amber Kanwar (3:00)

It is so good to have you because not only were your past ideas tremendous performers, but you were talking to us around this time last year, and you said the TSX is cheap. This is a golden era for value investors and it's going to outperform. Now a lot of people come on our podcast and they say a bunch of things. And it doesn't always come true. This definitely came true. The TSX has outperformed the S&P 500 It's up 25% since you were on in September. The S&P is only up 17%.

So I think the big question is, do you still hold this view that we're in the golden era? Did you, did the thesis play out quicker than you thought?

Kim Shannon (3:42)

You know, the thesis is really driven on inflation, and it's a big, big factor. And we've just gone through two very lengthy inflation-deflationary cycles, both 40 years long. And this new inflationary cycle, we're only in the fifth year. And so historically, these inflation-disinflation cycles can last as short as 20 years. So we've got at least 15 more to go, but possibly longer. And so right now, you really have seen this inflation cycle play out. And historically, value does outperform growth and is outperforming growth.

Even in the US., it's just being hidden.

60% of stocks in the US that are rated more value stocks are outperforming in the S&P 500 Only 40% of growth stocks are outperforming. It's that tail risk at the end, which is the MAG 7, that makes the overall market look expensive and being driven by that. But value is working, and we're seeing it in our own strategies. Year to date, like one year, all our funds are Canadian focused funds. Our internationals are doing extremely well, but I'm going to speak purely on Canada. The Canadian funds are outperforming by 27% to 31%— not outperforming. The results are that much. The outperformance is, you know, 4% to 7%, very much like what we saw in 2022 when we had the overall markets be weak. And in the five-year area, we're outperforming by 2% to 4%.