Portfolio Update

February 10, 2023


Global equity and fixed income markets are off to a strong start in 2023, following a challenging year. In January, the total return in Canadian dollars for all major indices was positive: the S&P/TSX climbed 7.4%, S&P 500 rose 4.7%, the MSCI ACWI gained 5.5% and the MSCI Emerging Markets index was up 6.3%. On balance, our equity and balanced strategies remained ahead of their benchmarks over the short term and over longer periods. While the monetary policy tightening cycle remains the main factor behind expectations for a weaker global economic outlook, recent trends are encouraging.

The global recession question

In our November 2022 Portfolio Update, we cautioned against viewing the global economic outlook in a binary recession/no-recession framework. While certain economies faced greater headwinds, we believed it was premature to conclude that a synchronized global recession was in the cards. We will discover whether these economies experienced a technical recession as year-end 2022 data is released in the weeks ahead; however, as we progress through this year, financial markets will begin to price in expectations for 2024. Our analysis suggests that there are grounds to remain cautiously optimistic.

Inflation is cooling in most major economies, a sign that central bank policy rates are nearing a peak. In fact, the Bank of Canada recently signalled an end to its rate hike cycle, provided inflation continues to decline in line with the bank’s outlook. The economies of both Canada and the U.S. have adjusted relatively well to higher interest rates and labour market indicators continue to trend favourably. Elsewhere, lower-than-anticipated natural gas prices and fiscal support measures are reducing fears of a recession in Europe. China’s re-opening will provide a meaningful boost to its economy, with positive spillovers on a global level. Indeed, while global economic growth is still anticipated to slow relative to 2022, the IMF recently increased its real GDP forecast by 0.2 percentage points and now expects world output to expand by 2.9% in the year ahead.   

Investment Process: Economic and Valuation Considerations

At our annual investment retreat, which took place over four days in January, our investment analysts and portfolio managers performed a deep dive into our investment strategy and economic outlook. Each sector was reviewed and analysed on a global basis: portfolio holdings were examined, potential risk exposures were highlighted, and new investment opportunities were presented. While these activities are done continuously throughout the year, we are confident this annual exercise enhances our portfolio management process.  


Projected key metrics of companies in

Letko Brosseau equity portfolios and their benchmark indexes

    EPS Growth
Dividend Yield
      2023 2024 2023 2024 2023 2024 2023 2024
LetkoBrosseau 11.8% 10.4 8.9 1.3 1.3 1.4 1.3 3.3% 3.5%
S&P/TSX 6.5% 13.3 12.7 1.8 1.6 2.1 2.0 3.4% 3.5%
LetkoBrosseau 17.9% 11.7 10.3 1.4 1.3 1.6 1.5 3.0% 3.2%
MSCI ACWI 11.4% 15.6 14.4 2.4 2.2 1.9 1.8 2.4% 2.5%


Based on equity prices as of January 31st, 2023.

Sources: Factset (www.factset.com) consensus estimates financial data and analytics and LBA calculations, Letko Brosseau Canadian Equity Fund, Letko Brosseau International Equity Fund

These annual retreats have taken place against many different economic backdrops; nevertheless, our investment approach has remained consistent. We are interested in the relationship between value and price and our objective is to invest in attractively priced securities, while avoiding those with a high degree of valuation risk or an overreliance on extraordinary future growth assumptions. Our equity portfolios currently trade at attractive valuations, with higher anticipated earnings growth than the index (Table 1).

Investment Process: ESG Considerations

Sustainable investing has always been a key component of our research process. As noted in our 2022-23 Highlights Letter, the firm scored very well in its latest assessment by the United Nations-supported Principles for Responsible Investment (PRI). As signatories of the PRI, we are required to report on our responsible investing practices annually. The three areas evaluated by the organization are as follows:

  • The Investment and Stewardship Policy (ISP) module aims to capture the reporting organization’s overall approach to responsible investment. Topics covered in this module include policy and governance, stewardship, climate change and sustainability outcomes.
  • The Listed Equity module considers how the reporting organization identifies material ESG issues and incorporates ESG information into its investment process and actively managed listed equity portfolios.
  • The Proxy Voting module looks at the firm’s policies related to the voting of proxies, including shareholder resolutions, and the disclosure of voting decisions taken.

Letko Brosseau performed well in each of the three categories, surpassing the median score of other signatories worldwide: Investment & Stewardship Policy 87% (60% median score), Listed Equity 95% (71% median) and Proxy Voting 64% (54% median). We are proud of the manner in which our ESG integration process allows clients to benefit from sustainable returns over the long term, while effecting a positive societal impact.

Concluding Thoughts

Our investment strategy entails patience in the face of volatility, a focus on capital preservation and a high degree of equity portfolio diversification by industry and geography. The companies held in our equity portfolios provide the opportunity for growth while paying a dividend that is competitive with government bond yields. Though bond yields have risen, we do not believe now is the time to lengthen duration or allocate more capital to fixed income securities. Indeed, our strategy to avoid overvalued long bonds while favouring equities within balanced portfolios has been a successful one over both short and longer-term horizons, as we will outline in our upcoming report entitled A Strategy That Pays Off: Maximizing Returns Through a Risk/Reward Approach. Having said this, we continue to take advantage of opportunities in all asset classes as they present themselves. In recent months, we tactically shifted a portion of our government exposure in fixed income to high-quality short-term corporate bonds as credit spreads widened to attractive levels. We remain confident that your capital is well positioned for growth over the medium- and long-term.

Legal notes

The information and opinions expressed herein are provided for informational purposes only, are subject to change and are not intended to provide, and should not be relied upon for, accounting, legal or tax advice or investment recommendations. Any companies mentioned herein are for illustrative purposes only and are not considered to be a recommendation to buy or sell. It should not be assumed that an investment in these companies was or would be profitable. Unless otherwise indicated, information included herein is presented as of the dates indicated. While the information presented herein is believed to be accurate at the time it is prepared, Letko, Brosseau & Associates Inc. cannot give any assurance that it is accurate, complete and current at all times. 

Where the information contained in this presentation has been obtained or derived from third-party sources, the information is from sources believed to be reliable, but the firm has not independently verified such information. No representation or warranty is provided in relation to the accuracy, correctness, completeness or reliability of such information. Any opinions or estimates contained herein constitute our judgment as of this date and are subject to change without notice.

Past performance is not a guarantee of future returns. All investments pose the risk of loss and there is no guarantee that any of the benefits expressed herein will be achieved or realized.

The information provided herein does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.

This presentation may contain certain forward-looking statements which reflect our current expectations or forecasts of future events concerning the economy, market changes and trends. Forward-looking statements are inherently subject to, among other things, risks, uncertainties and assumptions regarding currencies, economic growth, current and expected conditions, and other factors that are believed to be appropriate in the circumstances which could cause actual events, results, performance or prospects to differ materially from those expressed in, or implied by, these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.

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