Cardinal Capital Management

Equity mandates managed for ATBIM: Canadian large-cap

The Russian invasion of Ukraine contributed to volatility across equity, commodity, and fixed income markets. On Thursday, we saw significant swings including in the price of WTI oil with the commodity climbing over 9% to over $100/barrel at one point before ultimately ending up 1%. The NASDAQ was down over 3% before reversing course and then ultimately finished up over 3% on the day. The S&P/TSX declined 2% before ending up slightly in positive territory.

The extent and duration of the conflict along with the humanitarian cost are unknown at this time. However, market weakness due to geopolitical conflicts, such as the 1991 Gulf War or North Korea invasion of South Korea in 1950, historically tends to be short-lived. Markets typically recover quickly as the news is digested and uncertainty no longer hangs overhead. We may see spill over into a sustained rise in commodity prices such as energy, agriculture, and materials. However, this should not completely derail global growth. 

Geopolitical events undoubtedly cause anxiety for investors. History shows that the best approach is to stick with a well thought-out investment plan and not to make abrupt changes. Maintaining a portfolio of high-quality companies that have succeeded through even tough events of decades past has proven its worth over the long-run.

Cidel Asset Management Inc.

Equity mandates managed for ATBIM: Canadian large-cap 

Market turmoil is upsetting for everyone. As the saying goes “when the market is moving up, you always feel like you have too little exposure and when the market goes down, you feel like you have too much exposure”. The trick is to set emotions aside and refrain from making any dramatic moves during these volatile times. As tempting as it may seem, this is not the environment in which to make dramatic changes to one’s asset allocation. If there are particularly compelling investment opportunities, you can be assured that we will bring them to the forefront as we did in 2020 & 2021. We remain steadfast in our belief that now is not the time to tilt aggressively away from your long-term asset mix.

Mawer Investment Management Inc. 

Equity mandates managed for ATBIM: Canadian large-cap, Canadian small-cap, US Equity, International Equity, Global small-cap

What’s the risk?

• In the immediate term, the impact of Russia's invasion of Ukraine and its repercussions. This includes the risk of human death and suffering, sanctions on Russian entities, and the potential for even greater geopolitical tension and conflict with the West.
• Russian equity markets have sold off significantly over the past few days and months, as has the Russian ruble. Global equity markets are broadly lower this year.

What’s our exposure?

• Very modest. Coming into February, only the International Equity Fund had investments in Russia, a 0.6% position in TCS Group, a digital bank focused on individuals and not involved with the government, either as a shareholder or lender to SOEs. (this weight is obviously much lower today)
• I wouldn’t point to any significant indirect exposure either across our portfolios, as defined by revenue exposure. For example, businesses and individuals in Russia obviously use Microsoft products, but they are an extremely small portion of Microsoft’s global revenues.
  • Global small cap has a few companies with more exposure (e.g. Slovenian generic pharma company Krka derives 30% of sales from Ukraine and Russia; Norwegian salmon fishing company Bakkafrost has about 15% of its sales to Russia). Both are sub-2% weights in the Global small cap portfolio.

How are we mitigating these risks?

• We eliminated our position in Sberbank, the Russia’s largest lender, in late January within the International Equity portfolio, due to the risks of sanctions (which have indeed materialized)
• Recognizing the heightened macro/political risk in Russia, we are managing position sizing in those companies we do own, along with the aggregate exposure to Russia / Eastern Europe, and sticking with companies where the risks of sanctions may be less acute while recognizing that they may face significant volatility. TCS, for example, is prudently managed, does not lend to government entities, and has weathered past storms including the global financial crisis and the 2014 Russian sanctions. It may even gain market share if other banks are weakened.

It’s probably the 3rd and 4th order effects that will be more meaningful, but also much more difficult to predict. The COVID pandemic is a good example. At the risk of minimizing the toll on human health and the millions of deaths that COVID has produced … from an investment perspective, looking back over the past 2 years, the more important risks associated with COVID were less about virology, deaths and health, but more about supply chain impacts, work-from-home shifts, monetary policy, inflationary pressures, etc.

It may be the same re: Russia and Ukraine. Of course, of primary concern is the very real suffering associated with a war in Ukraine (or, and let’s hope this won’t be the case, but one that is wider spread). But the bigger indirect investment exposures may similarly be harder to predict ex ante and wider-ranging than simply where companies are headquartered or do business: e.g. the impact on commodity markets, inflation, supply chains, the potential for greater geopolitical conflict with the West, whether this emboldens China with respect to Taiwan, etc.

As usual, we don’t think we’re going to be able to predict something that everyone else will miss. And, as always with uncertainty, we continue to focus on being prepared, to understand what we own, and to be diversified.