The masters of the Stock Exchange in Quebec | Advocating for active portfolio management

For the modest sum of $500, you can afford the services of one of the best portfolio managers that Quebec has produced in recent years. Why not take advantage of it?

This is the reflection that financial author André Gosselin invites us to, in his 10^e book on the theme of investment.

Released this fall by Éditions Saint-Jean, The masters of the stock market in Quebec: enrich yourself with the best portfolio managers presents the journey of 12 Quebec managers who achieved the feat of beating their benchmark index over a minimum period of at least 10 years.

Consider Marc Lecavalier, designated manager of the Croissance Québec mutual fund (FDP), offered by the National Bank. It achieved an average annual return of nearly 15% in 15 years compared to 7.2% for the S&P/TSX Small Cap Index for the period ending January 23, 2024. Even taking into account the annual fees of management of 1.11% for the category F fund intended for independent shareholders, its outperformance remains remarkable. This FCP is offered to small investors with an initial investment of $500.

The primary attraction of Mr. Gosselin’s most recent work is that it opposes the dominant discourse, which swears by passive index management.

These are popular for good reasons. Their performance has been exceptional for 15 years – an example: the Vanguard S&P 500 exchange-traded fund (ETF) (ticker VFV) has a compound annual return of almost 18% since its launch in 2012 – for paltry management fees, often less than 0.15%. This is also the reality that my esteemed colleague Nicolas Bérubé points out week after week in his popular newsletter Money and happiness.

“I wanted to take the opposite view of his message, of his speech,” explains André Gosselin in an interview. Active management has its place in the portfolio of Quebecers. The managers I talk about in my book manage to obtain excellent returns, often by taking less risk than what is found in an index like the S&P 500 index, which has reached extremely high valuation levels. There are a few in the book who managed to beat their index or, at least, get very close to it, without necessarily investing in what we call the “Magnificent Seven”. [Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia et Tesla]. »

Throughout the 283 pages of the work, we get to know Hugo Lavallée, Philippe Hynes, Vital Proulx, Carl Simard, Nadim Rizk, Robert Beauregard, François Rochon, Philippe Le Blanc, Daniel Ouellet and others.

“It is extremely difficult to find portfolio managers who stand out from the major market indices,” continues Mr. Gosselin. However, in Quebec, we have a good range of portfolio managers who beat the market or their benchmark indices and who have nothing to envy of the best European or American portfolio managers. The objective of the book was to tell this to Quebec investors. »

The return of the pendulum

André Gosselin expects that the coming years will be less profitable for index management, a bit like the decade 2000-2009, nicknamed the lost decade.

It’s long forgotten, but if you had invested US$100 in the S&P 500 at the start of 2000, you would have had around US$94.33 at the end of 2009, assuming you had reinvested all dividends. This represents an investment return of -5.67%, or -0.58% per year.

The stagnation of the stock market in those years followed a period of euphoria that had been created by the rise of the Internet.

Today, after 15 years of almost uninterrupted growth, valuations of popular stocks exceed the stratospheric levels seen shortly before the 2000 dotcom bubble burst.

“I think,” says Mr. Gosselin, “that over the next 10 years good portfolio managers will really succeed in standing out by avoiding these securities which are much too expensive and which have valuation levels which are not justified by potential growth. of their profit.

“We have a stock like Walmart, which is selling at 38 times profits for the next year,” he gives as an example. It’s irrational. »

Mr. Gosselin is in good company. Former Bank of Canada Governor Stephen Poloz makes the same speech in his 2022 book titled The Next Age of Uncertainty : How the World Can Adapt to a Riskier Future.

In addition to a contradictory point of view on portfolio management, the reader of Masters of the Stock Exchange in Quebec is also entitled to a very enlightening description of the business model of half a dozen exceptional companies such as Moody’s, Copart and the Canadian Stella-Jones, Constellation Software and Dollarama.

Obviously, the investor who swears by the S&P 500 index de facto shuns these excellent Canadian companies.

The masters of the stock market in Quebec

André Gosselin

Saint John

284 pages