It’s time to cash in on Canada’s value and growth
Andrew Van Sickle: Canada is always overshadowed by its larger neighbour, so your fund is rarely in the spotlight. Tell us a bit about it.
Greg Eckel: It’s a general Canadian equity investment trust, North America’s second-oldest closed-end fund. It was set up in 1930, and listed in London in 1995. Think of it as a one-stop shop for investing in Canada. Up to 25% of the trust’s assets are allocated to the US (at present the figure is around 20%), typically to gain access to something you wouldn’t find in the Canadian market, or for the added liquidity you can get from America.
Canadian General Investments is more diversified than the overall Canadian stock market, which skews heavily towards the financial sector. That contains solid businesses, but they aren’t the fastest growers; we want to maintain our long record of beating the index (it’s been more than 50 years now), so we look beyond the banks. Financials are 31% of the index; add energy and materials, and we’re up to 70%.
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AVS: I understand you adopt a largely bottom-up approach, but these are unusually fraught times geopolitically, with mercantilism on the rise and supply chains fracturing. How is Canada placed in this context, do you think, geopolitically and economically?
Greg Eckel: Canada has always had a reputation for geopolitical stability; we are considered pragmatic and centrist. Mark Carney appears to have reinforced this reputation at an important time, proving to be a key driver of trade initiatives and internal spending, which should improve our prospects and help gradually loosen our relationship with the US.
Andrew Van Sickle: What’s the latest on trade?
Greg Eckel: We have been carrying on negotiations on what used to be NAFTA, the trade deal with Canada and Mexico. It is known as CUSMA, the Canada-United States-Mexico Agreement. This was supposed to protect around 90% of our goods from US tariffs, but the US recently threatened Canada with extra import levies. There is still considerable uncertainty and the issue hangs over the market like a cloud. About 75% of our exports still go to the US.
Andrew Van Sickle: A long-term plus point, however, is that Canada is amply endowed with raw materials.
Greg Eckel: We have critical minerals too, and currently own a company that refines and purifies them. It’s still small, but it’s a step towards tackling China’s dominance in the field. We have huge deposits of potash, which the US doesn’t have. The US, India and China buy nitrogen and phosphate, the other key ingredients in fertiliser, from us too.
Copper and gold are also promising thanks to the energy transition and central-bank buying, respectively, while a commodity we’ve certainly played to a great extent is uranium. The Athabasca Basin in Saskatchewan contains the highest-grade uranium deposits in the world, with ore concentrations between ten and 100 times the global average.
Uranium is looking especially promising thanks to the revival in demand for nuclear power. Canada’s Cameco, a core holding, is the number-one player in this field. Uranium and fertiliser are available from Russia and eastern Europe too, but sanctions are playing havoc with supply chains, so it’s easier for Western countries to buy it from us. We have a comprehensive supply chain, so it’s easy to ship it around.
Then, of course, there’s oil and gas. It’s mostly in Alberta, not near the coasts, so we have traditionally shipped it to the US via pipelines. There is now a drive to construct pipelines to the coasts. Finally, we also have abundant soft commodities: fresh water, corn and maple syrup are some of the main ones. We can help feed the world.
Andrew Van Sickle: One of MoneyWeek’s key concerns for the next decade or so is what we call “stagflation-lite”: lacklustre growth in the Western world and high prices. Canada seems set fair in this regard given that you have plenty of natural-resources companies; they will tend to have pricing power because raw materials are in everything. You also seem to have plenty of firms in other sectors with pricing power. You’ve mentioned Canadian Pacific Kansas City in this regard.
Greg Eckel: Yes, there are several companies this applies to. Canadian Pacific has a firm grip on supply chains, which provides the pricing power, and it connects Canada, the US and Mexico, so it is ideally placed to profit from the new trade agreement if it comes to fruition. The company boasts the best operating management team in the North American rail-company sphere.
Meanwhile, the Canadian National Railway Company connects the two Canadian coasts and the Gulf of Mexico. We also have a company among our top-ten holdings called TFI International. That’s one of the largest trucking companies. So it’s a different play on transportation, but it’s been a good grower too. It has a huge US presence as well. So we have circled the wagons on transport, as it were. The US economy still looks strong, and we try to tap into it through these firms. That should bolster their pricing power.
Andrew Van Sickle: Are all these solid prospects fairly priced into the Canadian stockmarket? Is there still relative and absolute value?
Greg Eckel: The benchmark index, the TSX, has outstripped other major developed markets for much of this year. The energy and financial sectors have risen by a quarter. But the fundamentals remain solid. Earnings growth should reach the low teens this year. Inflation remains in check, interest rates are steady and employment is stable. Trouble on the trading front could cause a wobble, however.
Andrew Van Sickle: What sort of price-earnings ratio are we talking about?
Greg Eckel: A forward price-earnings ratio of around 16.4. The US is at 21.5. The spread between the two markets has rarely been this wide. Our dividend yield is around 2.1%, and America’s is half that.
Andrew Van Sickle: You have said that the economy is still closely linked to its southern neighbour’s, and the stock market presumably is too. There is always something of a “Wall Street leash effect” on other equity indices. Do you think that this could loosen now that Canada is becoming more self-sufficient?
Greg Eckel: Prime minister Carney is leading the charge to reduce Canada’s dependence on the US, but this kind of thing takes time. It has taken decades for supply chains to become as integrated as they are, so disentangling them will be laborious.
But clearly, the initiative is there now that we have seen what disruption one person can create. With 75% of exports still going to the US, there is some way to go, of course. Consider too that the average car part can cross either the Canada-US border or the Mexico-US one seven times before finally being installed in a completed vehicle.
Andrew Van Sickle: Your second-biggest sector is IT. This is largely because of your holding in Nvidia, which you are dipping into the US market for – it’s your second-biggest holding – and Celestica, your top stock position. Is Celestica Canadian?
Greg Eckel: Yes. We bought Celestica in 2024. We were quite lucky to find it at an early stage. It is a so-called electronics-manufacturing services (EMS) company. Until recently the business made pieces and parts for the likes of Nokia and Cisco.
However, it turns out that the company’s products are very helpful for data centres, and so the Big Tech hyperscalers have come straight to Celestica and demanded more and more of the firm’s networking switches and related offerings. When we bought the stock, it comprised about 1% of the portfolio. It has been worth 5% at various times in the past two years. We have taken profits on it.
Andrew Van Sickle: Your biggest sector is industrials. That includes the transport giants such as the railways, which will be the heavyweights. What else are you dabbling in?
Greg Eckel: Aerospace and defence is a subsector of industrials, and we found a company called MDA Space in 2024, a space robotics and infrastructure group. That has profited from the excitement about the space economy.
We also recently established a position in a business called Aecon Group, which is a large construction company. The firm builds bridges, water-treatment facilities and nuclear reactors, among many other things. Aecon is a key beneficiary of the drive variously to construct or rebuild nuclear reactors.
AtkinsRéalis is another company cashing in on the nuclear renaissance. It is an engineering group with the rights to the CANDU technology, the intellectual property covering the design and manufacture of nuclear reactors in Canada.
We have also long been impressed with Stantec, an engineering group with a presence in energy, water and transport. That means it is perfectly placed to profit from the drive towards boosting infrastructure across North America.
This article was first published in MoneyWeek’s magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
