In “Central bank policies are diverging. Here’s where to invest now,” Bryan Borzykowski writes:
Mixed monetary policy makes asset allocation more challenging, especially as exchange rates fluctuate. When rates get cut, fixed income yields fall, causing bondholders to go looking for higher yields in other countries. That puts pressure on currencies, because bonds are mostly denominated in the local coinage. When international investors sell Canadian bonds, they’re effectively selling loonies too.
Here are five stocks that may see some upside from mixed monetary signals:
1-year total return (C$): 41%
The world’s largest asset manager should benefit from rate cuts, in part because stocks tend to rise when bond yields sink, says Mawer’s Paul Moroz.
Wells Fargo & Co.
1-year total return (C$): 36%
Blue chips can do well in a more volatile environment, says Moroz. This San Francisco–based bank will benefit from rising rates in U.S., home prices and consumer spending stateside.
Canadian Western Bank
1-year total return (C$): 21%
This Edmonton-based bank is down 10% year-to-date due to the slowdown in its backyard. People are overreacting, says Leith Wheeler portfolio manager Michael Schaab; he argues that cheaper rates should limit the number of loan defaults.
Tourmaline Oil Corp.
1-year total return (C$): 20%
Contrary to its name, this Calgary-based company produces natural gas. It’s trading at 31% below its August peak yet continues to grow production. It’s debt-averse, but it could now borrow at a lower rate if need be.
Valley National Bancorp.
1-year total return (C$): 16%
This bank, based in Wayne, N.J., generates more than 80% of its total revenues from net interest income. It does well when the U.S. economy does well.