‘You have to think about yields’: BMO Global Asset expert on Telco underperformance
As investors grow cautious towards the Telecom sector due to underperformance amid high competition within the TSX, one global asset expert is focusing on TSX financials, which have high yields and diversified business that extend beyond Canadian soil.
“You have to think about yields,” said Sadiq Adatia, CIO of BMO Global Asset Management, in an interview with BNN Bloomberg on Tuesday.
“When you think about fixed income — things like financials or, again, telecoms, you kill these with other areas that would generally have higher yields,” he explained.
“You also want to get growth out of those yields. I just don’t see that (with Telecoms) in the same way I would see that in other areas like financials.”
“If I go back into the fundamentals — the battle sheets of these (financial) companies -- they’re very strong. It diversifies the business outside of Canada. The yields are strong. You’re going to see a continuation of growth of that dividend over time.”
Adatia added that he thinks the interest rate environment in 2024 will be “a bit more favourable as well,” while also but expressed caution about the potential for “low cost provisions.”
“I do think that, in Canada in particular, the consumer is getting weaker faster than the United States. But I think a lot of that is already priced into the markets,” he said.
Adatia mentioned that he considers currency performance when thinking about how to allocate capital.
“We’re bullish on the U.S. dollar still. I think we will see the Canadian economy and central banks of Canada cut rates more and earlier than the U.S., so it will help strengthen the U.S. dollar,” he explained, adding that this year will face higher volatility with more geopolitical risks.
“A lot of things are favouring the U.S. dollar, at least for 2024,” he said. “That might change when you get to 2025. And we see maybe some strength come off the USD in favour of the Canadian dollar. But not this year.”
To watch the rest of Adatia's interview with BNN Bloomberg, watch the video above.